Holiday Gift-Giving – Deadweight Loss or Welfare Gain?

Abstract

For macro-economists, the importance of holiday gift-giving is the effect of spending on the macro economy. However, for micro-economists, gift-giving has a different important aspect. As purchasing choice is made by someone other than the recipient (i.e. the final consumer), economic theory therefore suggests cash may be superior to gifts in-kind that are welfare reducing (i.e. deadweight loss). That is, the cost of the gift is higher than its value to the recipient. However, there has been no consensus in the empirical literature on whether gift-giving creates or destroys value. In this study, we found that purchasing holiday gifts (for the Jewish Passover in Israel) leads to welfare gains. Although there is no difference in the price of gifts given to women compared to men, the value and welfare gain are lower for women. This result is also reflected in a higher rate of gift return and lower satisfaction among women compared to men. Social distance between the giver and the recipient did not affect the welfare gain.