Confounding Issues in the Deadweight Loss of Gift-Giving

Abstract

When a gift is given, 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 addresses and clarifies 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).