The Economics of Gift Giving

Tyler and I debate the economics of gift giving.

As usual, we recommend Givewell as the best source for making your altruism effective! GiveDirectly continues to be one of Givewell’s highest ranked charities and they are also doing good economics research.


Would I be a Grinch to point out that both of them, particularly Tyler, would benefit from the gift of less ugly sweaters?

(pssst -- those are supposed to be ugly sweaters)

I actually like Tyler's sweater. The deer is kind of cool. :-)

Ugly Christmas Sweaters are big sellers. See here

Another market failure.

I know the stats are correct, but I still cannot bring myself to believe that if you transfer 500$ to a random impoverished person in Africa, that will somehow will help even him in the long-term (even less on the country level). It's something psychological, thinking that such small things cannot change anything for the better and that money will not be invested, but rather wasted.

I suspect it depends a lot of who gets the money. But also, I think it depends on what kind of intervention you're trying to do.

Case #1: You're trying to help urgently poor people right now--feed the hungry, clothe the naked, buy medicine for the sick, etc., in a more-or-less functioning society.

In this case, it seems like giving cash directly to poor individuals is probably at least as helpful as giving it to some organization that hands out food, clothing, medicine, etc. The individuals know what they need better than the organization, and can buy those things on a market. They probably know family and friends who need things and can furnish those folks with some cash as needed. And doing it this way supports the existing market and suppliers of food/clothing/medicine, which helps grow capacity for producing those things locally.

This has the downside that it's likely to be a temporary fix--if you're desperately poor, giving you money to buy food is great for feeding you, but once you've used up that money, you'll need more or you'll start going hungry again. But if that's what you're shooting for--say, giving to a charity to feed starving children in Africa--I expect that giving a small amount of money to many poor people is better than giving a large amount of money to a big organization whose mission is to feed starving children in Africa.

Case #2: You want to do some larger-scale thing--not just buying clean drinking water for a family for awhile, but actually putting in a well that will bring safe drinking water to a whole community. Or building a community hospital or something. In that case, you probably want to either give money to a big organization that can do this stuff, or find a local entrepreneur who can make money doing it (maybe in conjunction with the direct cash payments people are making to poor people).

Try imagine it as giving someone who was scammed (through no fault of their own) $50,000 to get back on their feet.

The recipients on Givedirectly essentially got scammed in the birth lottery, and $500 in Africa goes sizably farther than in the west.

Is birth done by lottery now? I thought it was determined by people who decided to have sex.

Back on their feet? They never had anything to begin with, so nothing is owed. It is nothing more than envy to suggest otherwise.

@Konstantinov Roman - TC linked to a young growth theorist about a month ago, name escapes me but in my notes if I dig for it, that claims any gift given to anybody will dissipate after four years max, but the good news is they get four years of bliss (above average lifestyle), which is not bad. Also consistent with economist William Easterly's anecdotal observations (his book "White Man's Burden" was a bombshell, remember when it came out? Classic). Your theory of a "Big Push" (lots of $ needed in Africa to make a difference) is the somewhat discredited Jeffrey Sachs approach.

Bonus trivia: in the GiveDirectly front page, there's this guy: "Samson Country: Kenya Occupation: Subsistence farming Age: 77 " who wants to send his kids to high school (let's say they are 12 years old) with his gift money. Do the math: 77-13 = 64 years old. As a middle aged man, I admire this hombre. His wife must be probably under 35 years old too, probably even younger. No Incel he.

+ follow up on Sir Samson in my bonus trivia: consider that Samson says he is pauper who had to live in a 'neighbor's house' instead of having is own, yet, he has a wife half his age and he's having kids at age 64. Either something is not right with his narrative or they have different standards about parenting and birth control in Africa, possibly it's even both.

So it has come it: Economics of Giving Gifts. Instead of a warm gesture of affection, cold economic calculation.

Although I oppose Communist, it is hard not to agree with Marx analysis: "The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his 'natural superiors', and has left remaining no other nexus between man and man than naked self-interest, than callous 'cash payment'. It has drowned the most heavenly ecstasies of religious fervour, of chivalrous enthusiasm, of philistine sentimentalism, in the icy water of egotistical calculation. It has resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms, has set up that single, unconscionable freedom — Free Trade. In one word, for exploitation, veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation."

Why do you oppose Communism? What Marx wrote fits the United States perfectly.

Yes, but Communism means the enslavement of men by an all-powerful state as seen in Red China, the Soviet Union, Cambodia, Cuba and Albania.


And so does Capitalism, which is the enslavement of men by the all-powerful dollar as we see in the United States. What other choices do we have?

The Capitalist system can be reformed. President Capitain Bolsonaro has vowed to introduce key changes. He will restrict immigration, raise welfare payments, cut overhead, block Chinese predatory investment, create well-paying jobs, fix the infrastructure and allow honest people to buy and carry guns and ammunition.

Why not celebrate the theomachy of the season instead?


(Surely this news heralds long ages of global peace all by itself.)

Thanks, TC! Donation to GiveDirectly is on the way!

If you search "ugly Christmas sweater" on ebay right now, you will find 804,451 sweaters to choose from.

My brother and I discovered that the cash exchange strategy is a good way to enrage your mother. So maybe not so efficient.

Those are some ugly sweaters. Where can I get one?

Repugnant. Giving degrades the giver. Medecins sans Frontieres, soldiers who leap on grenades, first generation immigrant parents. They are all deprived of basic human dignity by the sacrifices they make for others.

Going by the comments, and the focus on Givewell and GiveDirectly, I wonder if the analysis was not more about charity than giving. As charity is a form of giving, but not the totality of giving, do the conclusion hold for giving?

So just watched the first half. I think the above applies. The problem with the analysis is that giving IS NOT the same type of trade or exchange the economist consider.

Consider the case of a gift a person would never buy for them self even if given the money that would easily purchase the item. However, having received the thing the person would never part with it for any money.

True, many many gifts don't fall in that class. But that is more about the culture and customs behind the giving, the the concept of diminishing marginal return and perhaps market-failure (which could never be resolved through government action but might be resolved via a cultural evolution process regarding social rules/customs).

However, the above suggestions would not help addressing the problem of inefficient giving (as opposed to inefficient charity).

I see people complaining about gift-giving all the time; why not just stop?

I find most gift-giving to be inefficient and pointless. If it's a consumer good and I wanted it, I'd already have it, and cash exchange is even worse. So I never give gifts just to satisfy the tradition - only if the mood strikes me. It seems very parsimonious and holidays are stress-free, but sometimes I wonder if I'm paying a hidden social cost.

This is amazing.

Comments for this post are closed