The Economics of Holiday Gift-Giving

The holiday season initiates the rush for the perfect gift; however, the economics of holiday shopping have induced a catch-22. 

Yuletide economics specify that finding the preference of your recipient is the proper process of gift-giving. All the consumer has to do is guess that preference to find the perfect gift, but there are financial limitations in times of economic insecurity. Gifts must be chosen with more precision this year, as household net worth is at its lowest since 2008.

Christmas is not bad for the economy, but it produces a waste of resources. Think of all the times an unwanted present has graced the season of giving. Is it better to buy that over-priced lotion set for your sister even if she values it at $20 lower than its retail price? 

But, what about the sentimental value of giving a gift? Is it better to give an inefficient gift in order to demonstrate thought? Joel Waldfogel, in his study, The Deadweight Loss of Christmas finds that, “Gifts from family members, friends, and significant others are the most efficient gifts to receive, while noncash gifts from members of extended family are least efficient and destroy a third of their value.”

Economically speaking, cash offers the most utility, but cold hard cash would destroy the cultural mores of the giving season as much as an unwanted gift destroys a third of its value.

So what are consumers to do when the gift of giving costs more than the worth of receiving? The essence of gift-giving is in the thought. And the memories. 

There is now scientific proof that life experiences are more satisfying and cheaper than gift-giving. While this advice goes against the hype of seasonal economics, there is also a global dematerialization trend occurring. In the U.S., the number of cars and per-capita mileage are flat and falling, respectively. Fred Pearce discusses in his article that this dematerialization trend is catching speed due to the environmental Kuznets curve. This curve suggests that in the beginning stages of industrialization for a country, there is a “cheap and dirty” phase when the country wastes resources and generates massive pollution. After that peak point, it begins to use resources more efficiently. 

That is not to say that these countries, as they advance, start using less, but there is a slow decline in the materials and energy used to generate the dollars of GDP. Economic times are difficult these days, but there is a catch; it’s not bad to dematerialize.

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