Deadweight Loss of Gift-Giving

Abstract

When giving a gift, someone other than the final consumer makes the consumption choice. Thus there is a possibility that the gift will not match the preferences of the receiver, i.e., the gift will represent a wise use of the money given the gift-giver's tastes but not necessarily a wise use of money given the recipient's tastes. In other words, gift-giving can result in a deadweight loss. This paper examines the issue of the deadweight loss of gift-giving. In particular it attempts to resolve and clarify the discrepancy between Waldfogel's (1993) finding of a deadweight loss from gift-giving and Solnick and Hemenway's (1996) finding of a deadweight gain from gift-giving. It also builds on some of the concerns raised by Ruffle and Tykocinski (2000). To accomplish this, the deadweight loss of gift-giving is estimated based on data collected from a survey of undergraduate students at the University of Tennessee at Chattanooga.

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