How Economists View Christmas

Some say gift-giving `wastes' billions

Only practitioners of the dismal science could pose such a niggling question: Although Christmas gift-giving greases the wheels of commerce and warms the hearts of givers and recipients, is it really economically efficient?

Along with many economists, Joel Waldfogel of the Wharton School thinks not. A few years ago, he asked several groups of college students to estimate both the actual costs of the Christmas gifts they had received and the prices they would have sold or paid for the same items, excluding the gifts' sentimental value. His results indicated that on average the group valued their gifts at 10% to 25% less than the estimated prices paid by givers, which suggests that billions of dollars in value were lost via such exchanges--value that could have been saved or enhanced through more judicious gift-giving.

Fortunately for Santa Claus, not everyone agrees. In a similar study involving students, college staff, and the general public, economists Sara J. Solnick of the University of Miami at Coral Gables and David Hemenway of the Harvard School of Public Health found that recipients valued their gifts at as much as twice their estimated costs. (A person may place a higher value on a gift for a variety of reasons, including the fact that it took a lot of time and effort to find and purchase it.)

One reason for such contradictory findings may be that people have trouble separating sentimental value from monetary value. Thus, John List of the University of Central Florida in Orlando and Jason Shogren of the University of Wyoming recently conducted a similar study with a unique twist, using a random auction method to actually buy Christmas gifts from students.

The result: Knowing they might have to part with one of the gifts they had received, the students on average valued their gifts at close to their estimated costs. So gift-giving, American-style, may actually be more efficient than many economists believe.

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