Gift-giving and deadweight loss

Although economic theory asserts that cash is often superior to gifts in-kind for maximizing welfare, there has been no empirical consensus on whether in-kind gift-giving destroys or creates value—i.e., whether recipients value gifts less than, as much as, or more than givers pay for them. The present study introduces a simple but important methodological innovation. Whereas prior studies focused exclusively on recipients’ estimates of the costs of gifts, we obtain more objective information on actual market prices. We also compare gifts in-kind to gift cards. We find a deadweight loss that averages more than 7 percent of the market price on gifts in-kind, and more than 14 percent on gift cards.