An Economist’s Christmas

Happy holidays to all our viewers and readers! Our holiday video covers the economics of gift giving. When is gift giving wasteful? When does gift giving generate value? What are the knowledge problem and the incentive problem and how does this apply to charity? It’s a great conversation starter for economics classes. Enjoy!

P.S. Happy Sinterklaas!


Our family decided to quit giving presents this year. There aren't any kids anymore and we can all afford to buy the things that an average American middle class life allows. My dad suggested everyone pick a charity to donate to and we send them a donation. Give Directly will be my choice.

Sending gifts by post to other countries are ideal value destroyers. People find out that import duties and handling fees in customs may be higher than the value of chocolates, clothing for the baby or handcrafts. If you want to send something by the post to a family member, don't be a troll and just send a postcard ;)

Don't you know the secret? You have to write "GIFT" in prominent letters outside the package or you'll be charge duties of all kinds.

US Customs are friendlier compared to other countries. 100-200 USD in value can pass as gifts without problems. In other countries anything above $50 is a "good subject to import duties".

The argument in the video is too simplistic for several reasons.
1. Often the recipient values a gift more than what he would otherwise purchase with cash. He does not have exhaustive knowledge of all of the available goods and services, and acquiring such knowledge is costly. Gift giving is therefore a distributed algorithm, perhaps not optimal but still useful, for sharing knowledge of available product.
2. Often the recipient finds emotional value in the fact that the giver thoughtfully considered his or her needs, and a negative emotional value to thoughtless gifts. This fact is addressed in the video. However there is also a side effect for the givers who must exercise the part of their brain associated with "thinking of others" and all that good stuff. One could argue this produces more efficient social interactions down the line.
3. I'm skeptical of the usefulness of claims on the recipients value of received gifts. It is systematically biased to be less than the value of the gift because the recipient has not in fact purchased it. This is the whole point, you might say. But I often make mistakes at evaluating the value of a product I haven't used. When I estimate the value to be too high, my error is causes me to overpay and I learn accordingly. When I estimate the value to be too low, my error causes me to *not purchase* and in that case there is not a good mechanism for me to learn the folly of my ways ("it's just too expensive"... but is it?). Gifts provide a mechanism for improving my capacity to evaluate products by exposing me to those on the margin.

Point 1 is also addressed in the video--see Tyler on search costs.

Yawn. it's right-wing mantra that giving cash has a higher marginal utility that free services, hence, giving $20 to a wino (who will buy more booze with it) is much more valuable to him (and to the gift-giver, if you value making somebody happy) than giving said wino $20 in free legal services.

I guess it's left wing mantra that the government knows what's best for the individual. That's the authoritarianism of the left that bothers me. It denigrates the value of the individual.

A gift does not buy 'utility' for the 'buyer', or the one who gives. It bestows a moral obligation upin the receiver (consider the vitriolic reactions when a charity CEO earns too much). Having stated this, part of what Anglo Saxons consider gifts aren't: pop anthropological literature sometimes state that a hunter gives the animal to other clan members. but in such societies, the hunt does not result in private property, there is a reason why, once upon a time, the phrase 'free game' was coined. As a rule, the hunter does not own what he shoots - or at least not as private property. Aside - do I own the wage I earn? Or is it joint property of my family? Aside from this, gifts often contain symbolic and not market exchange value: wedding rings, olympic medals, crown jewels etc. Or wampum, used as money bu white settlers but not as such by native americans. PhD's, anyone? Which brings me to: the point. the special thing about market exchange is that prices are known before a transaction is excecuted or finalized. The essence of gift exchange is that this is not the case. Which means that using concepts related to the analysis of market exchange are not valid and concepts related to honor, shame and unwritten obligations instead of market exchange value take center stage. Another aside; i could not retrace it, but on this blog Tyler once linked to an article stating that hunter-gatherers, who basically do not own anything, are more economic rational than societies who do know the concept of property. Does property make us myopic, for instance by making us try to explain the value of a gift with concepts based upon monetary market exchange?

Caveat: this little disucssion excludes the kind of the leftovers from the attic which are sometimes bestowed by parents or parents in law on children.

"It bestows a moral obligation upin the receiver " - yes, in Balkan culture, which I'm familiar with, giving a gift is an act of aggression, since you are expecting the gift receiver to reciprocate. For this very reason some Greeks categorically (and rather violently) refuse to accept a gift, so they don't have the moral obligation (and all the baggage that entails) to reciprocate with giving a gift back.

The Greeks are known for their aggressive gift giving.

Well played.

or would it be "giving of aggressive gifts"?

I like how you basically said, "beware of greeks bearing gifts" without actually saying it.

When you're only successful on the hunt every few weeks or so, sharing with the clan isn't exactly an option because otherwise you'd be dead in the meantime.

Some research suggests that more calories came from berries, root tubers, etc., and that the hunt was an inefficient trophy food. Studies showing that chimps do better on some rapid testing than humans suggests that it might not even have been that useful for coordination and all that warfare stuff that followed later, but maybe that's not the case ...

Yet researchers proved some Brazilian tribes lived almost exclusively on meat and fat.

A meat-central diet makes more sense in some situations than others. To find it in a humid tropical setting seems very surprising.

I get arid environments and eating goats, or freezing environment and eating something other than plants of which there are none ...

Which tribes? Seems very possible, but I don't know if you're being serious.

Thoroughly enjoyable.

Does anyone else think that Alex sounds a bit like Jerry Seinfeld in this video?

"What is the deal with Christmas gifts?"

I'm really disappointed no one has yet commented on the sweaters we put Tyler and Alex in.

I actually typed out a comment on that but deleted it for lack of gravitas.

Others remain really disappointed that no one has mentioned you are mruniversity - nice link in the name, by the way. Though you have come up in the world since those glorious days of yore, when MRUniversity was nothing but two GMU professors, a $4 app, and youtube. With online strategy being the furthest thing from such idealistic profiessor's minds, undoubtedly.

Of course, who would have thought back then that it would later apparently spawn the career of the current director of online strategies at the Mercatus Center.

The funders of this free and educational content must be castigated on the basis of where the money came from with zero regard for whether the content itself is worthwhile.

Pray do tell - at which minute and second of the video do you start to get the idea that these are bought men?

Incidentally, the same funders that raise red flags about potential independence issues through the Mercatus Centre also forward pretty large sums of money to a Canadian think tank that I'm regularly very critical of. There isn't really a Canadian libertarian think tank, so there aren't really many options if you want to put money behind something in that direction.

It's good to be aware of potential influences which bias research efforts, but the fact of the potential bias is not proof of one. For example, in supporting organizations which seem content to sow confusion (and sometimes informative perspective) on matters of climate and fossil fuels, the oil tycoon side is very clear. But I think your interest/concern is misplaced in this regard for this context.

"There isn’t really a Canadian libertarian think tank"

Does the Fraser Institute count?

"I’m really disappointed no one has yet commented on the sweaters we put Tyler and Alex in."

Did they each get to pick the one they liked?


Dankjewel Tyler

I buy my wife a bottle of Bual. She buys me a bottle of Sercial. Delish.

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