1. I enjoyed the giving at $100, the amount I spent. In this case
the net benefits are $150, yet it took only $100 worth of resources (assuming the
gift was produced competitively). Christmas is an excellent deal.
2. I enjoyed the giving at $50, which was the value to my sister. I
like giving gifts, but only insofar as other people like receiving
them. In this case there is no deadweight loss. The benefits sum to $100, precisely the social cost of producing the gift. [Hey, what if my sister enjoys the fact that I enjoy giving to her, I enjoy that she enjoys, and so on…?]
3. I don’t enjoy giving at all, but I need to signal attachment to
avoid the collapse of my social relationships. We could then estimate
the value of the resulting signaling and sorting effects, but the value
of giving is zero.
Now shift gears just a bit. The U.S. government is running significant unfunded
liabilities over the course of the next two generations. Might we respond by offering the next generation greater gifts?
believe #1 as a more general account of giving, the value to a gift donor is in the personally chosen
sacrifice, not the produced net benefit to the recipient. We have already chosen personally
optimal levels of sacrifice, and won’t much increase our gift bequests
(i.e., savings) to help out descendants when their circumstances worsen.
If you believe #2, we more likely care about how much net
value our behavior produces, and not just about the cost of a single
sacrifice. We might then be more inclined to increase savings and
bequests to offset future economic difficulties. If you believe #3, we are selfish and won’t
save and bequeath any more than we have to. All of these scenarios can be given different
assumptions and twists, but that is my first cut approximation at the
correct answers. Ricardian Equivalence involves some very particular assumptions about the structure of altruism.
The bottom line: The best-case scenario for the value of
Christmas is not the best-case scenario for the future of the American
economy. Are you thinking more about what you spent, or more about how
much your gifts were enjoyed? It is the latter scenario that offers cause for a more general economic optimism.
Thanks to Blake for the pointer and query.