Of deadweight loss and gift giving

The Christmas tree, Santas gift sack, gift-opening under the tree with the entire family around-sounds like such a warm and happy scene. But, behind the bright ribbons and shining gift packages is something which might make followers of the tradition explore the possibility of doling out cash like eidi is handed away in Pakistan on Eid. That something is the so-called deadweight loss of gift giving, pointed out by economist Joel Waldfogel nearly two decades ago. Unsurprisingly, this doesn apply to Christmas gifts alone, but to gift giving as is practiced generally. For example, how many times have we received gifts that we never wanted? A handbag that was shoved in a deep cranny of the cupboard, a sweater handed over to the maid, a perfume one would rather spray on the dog or a dress shirt a tad too loose for your liking. The concept of the deadweight loss has to do with the utility the recipient derives from a gift. According to the survey conducted by Waldfogel, Americans, on an average, value the gifts they receive at roughly 16 percent less. This means if someone purchased a pair of tee-shirts for someone for $100; it appears the recipient would have been willing to pay only $84 for those tee-shirts. The $16 lost is the deadweight loss of gift giving. And lets admit it; the phenomenon is not uncommon with anyone else other than Americans. Many would admit to receiving gifts at their birthday they wish they could return; a graduation present which theyd want to swap for pet food or a wedding gift that theyve struggled to fathom the use of. As the world becomes more accepting of the idea of returning or exchanging gifts, some respite is offered to this deadweight loss. If a recipient doesn like the gift, theres always the option of getting it returned if, hopefully, the packaging of the product is intact and its recently purchased. Gift giving is at its most efficient when the giver and the recipient know each other very well. Therefore, spouses exchanging gifts on anniversaries are likely to be a happier experience than receiving something from your next-door neighbours aunt. At the same time, age difference between the receiver and the giver diminishes the utility of a particular gift. No wonder grandparents find it better to just give away a cash envelope to beloved grandchildren rather than a hand-knitted cardigan they might never wear. Waldfogel finds between one-tenth and one-third value of a gift is lost in gift giving; that makes one wonder if giving out cash is a better idea: If the responses of most peers and family are anything to go by, the answer is yes! "Even if the present costs as low as Rs.100, Id rather get the same in cash than something I won even use," exclaimed a 25-year-old female. And for this very reason, one must have encountered a wedding invitation or two saying: "No boxed presents please!" In fact, this is also a great opportunity for retailers to start popularising gift cards and cash vouchers. But the stigma attached to cash gifts has clouded the importance of this economically-efficient option. One hopes a smooth acceptance of the idea of cash gifts, of course, according to as much as one can afford.