Sorry to rain in on all your Christmas cheer, but this period just bums me for the waste of resources it brings with it. I am all for people being generous to others and spreading wealth and happiness, but Christmas presents are just the wrong way to do it. Are the gifts you give to others truly the best use of the money the others would have made? Or, seen from the perspective of the gift receiver, would have bought something else with the the value of the gist I just received?
It turns out that the AER published back in 1993 a short article by Joel Waldfogel with the same title as this post. He surveyed Yale undergraduates to estimate how much the mismatching between the gifts and the wishes of the receivers were destroying the value of the gifts. Results: between 10% and 33% are lost. Losses are at the lower end of the interval for gifts from immediate family and friends, and at the upper end for extended family. Waldfogel finds also that cash gifts are more likely when losses are likely to be high, or when there is high variation in recipient valuation.
Waldfogel's results were controversial, first because the sample was drawn from a highly unrepresentative sample of the American population: Yale undergraduates (rich, young, dependent on parents). Also people seem to value a good more when it is received compared to self-bought. This can even result in a welfare gain from Christmas. Subsequent comments (rarely has a short article in the AER generated so much discussion in the AER) highlight that it is very difficult to measure anyway, and that the sequencing of the survey questions matters.
My take on this: I have the feeling that in many cases the original Waldfogel results are accurate. Just think of all the "gift stores" that sell crap you would not buy for yourself, but is good for giving to others. But I can believe that in some situations, the sentimental value of a gift makes up for the value. Think for example about diamonds: while the diamond industry managed to create the illusion they are worth a lot, their resell value is very low. Yet, all those women receiving diamonds are overjoyed, even when they should realize the hole it created in the household budget.
Once you remove the sentimental value of a gift, it is clear that there is a dead weight loss. This extends beyond Christmas. Imagine for example housing support for the poor, as it is common in the UK. Why give a housing subsidy? Wouldn't the poor be better off with a general subsidy?
Note also that gift buying typically happens in period where buying frenzy is encouraged by stores and media, at least in the United States. I can understand that it becomes difficult for some people to exercise restraint. Such unbridled consumerism can only add to the dead weight loss.
Media often comment how important good fourth quarter shopping results are for the economy. Well, the media is most likely wrong. I would prefer to have smaller seasonal effects and a better allocation of resources.