According to Wharton School economist Joel Waldfogel, we might be better off if we stop gift giving. Dr. Waldfogel says that all too often, the value of the gift to the recipient is less than the price the giver paid. The resulting “deadweight loss” makes him conclude that holiday gift giving is not as beneficial as many assume.
Perhaps this is an ideal example of economists knowing the price of everything but not the value or (opportunity) cost.
Waldfogel discusses his research in a recent Slate article and today’s “Note”, a youtube interview:
Deadweight Loss: Value that “disappears” because a price does not reflect a cost/benefit match. If you are willing to pay $30 for a t-shirt which cost a gift giver $50, then the deadweight loss is $20. If the giver got $10 of pleasure, still the deadweight loss in $10.00. More typically, deadweight loss refers to taxes and monopoly pricing.Read More