September 9, 2022
In the most recent issue of the Journal of Institutional Economics, Anthony Gill and Michael Thomas critique Joel Waldfogel’s infamous critique of gift-giving.
Their abstract:
“In his Scroogenomics, Joel Waldfogel argues that gifting creates enormous deadweight loss, as individuals give one another gifts that they do not want or cannot use. He views efficiency as static, calculating the gains from trade (or gifting) at the moment of transaction. A puzzle arises, however, when one realizes that gifting has been a nearly ubiquitous institution throughout history. If gifting wastes valuable resources, why does it persist? We argue that gift giving is dynamically efficient despite the possibility of generating short-term deadweight loss. A well-functioning market economy requires expanded social networks and trustworthiness among anonymous and quasi-anonymous exchange partners. Gifting allows individuals to signal trustworthiness by offering ‘burnt sacrifices’. Gifting practices that include a willingness to sacrifice via reciprocity norms, public visibility and ritual will tend to promote generalized trust. We consider these four elements – sacrifice, reciprocity, publicness, and ritual – to be critical institutional design principles for fostering dynamic efficiency. Our essay contributes to the literature on institutional economics by prompting scholars to think about the long-term (dynamic) efficiencies generated by cultural practices that appear inexplicably inefficient.”
In the conclusion, they write:
“Our goal here has been to reframe the way we understand gift-giving and challenge narrow neoclassical economic conceptions of gifts that ignore their broader institutional importance. Gifts may produce static inefficiency. Gifting generates dynamic efficiency. This difference is critical to understanding the particular institution of gift-giving as well as many other human actions that appear odd and unproductive (e.g. Leeson, 2017). Process matters. The process of producing, giving, and receiving generates a value that often increases the value of the artifacts presented and/or exchanged. Not all gifting practices work similarly to generate dynamic efficiency. We have argued that the more a particular practice involves each of the design principles laid out above, the more it will promote generalized trust, which is an important lubricant of efficient markets and social flourishing.”
Their argument is similar to Kenneth Boulding’s perspective on gift-giving.
“Just as a loan may be regarded as a short-run gift but as a long-run exchange, so may outright gifts be in this category. In some societies, indeed, almost all gifts are essentially what the anthropologists call "silent trade"; that is, almost always made in the expectation of a return gift. It has been argued by some anthropologists that gifts essentially antedate exchange as a social institution, and that exchange arises out of a mutual transfer of gifts. In our society the exchange of gifts at Christmas is perhaps a case in point. Even though it is supposed to be more blessed to give than to receive, most of us probably find that if our gifts strikingly exceed our receipts, or the reverse, we feel a little uncomfortable.”
All in all a thought-provoking and much-needed paper. I’d only add that the Neoclassical welfare theory of deadweight loss is itself the root of much mischief. If I voluntarily accept a gift—even one I plan to stick in my closet—can we really say the interaction has generated “deadweight loss”? Not to mention that consumer and producer surplus are not measurable (extensive) qualities to begin with.