Priceless: the inefficient, but merry economics of Christmas

FINGERS crossed, we are soon to be inundated with Christmas joy disguised as presents from our family and friends. I received my first card weeks ago and a present - now sitting under the tree - from our eldest, wee Jimmy (now not so wee and living away from home in his own flat). I found this particularly gratifying as I had told Jim that he didn't have to buy a present. I had hoped he would want to send a present. The fact that the gift was not required, but offered freely, makes it the more valuable.

Casual observation indicates many of us appreciate gifts more than those items we require or buy for ourselves: consider the giving of birthday presents, flowers, and such like. This is despite the fact that, according to strict neo-classical economic theory, such giving is inefficient. Joel Waldfogel makes this clear in The Deadweight Loss of Christmas.

According to him, the inefficiency arises because when we give, we might not perfectly match the recipient's preferences. He estimates that giving "destroys" 10-30 per cent of the value of a gift. However, it strikes me Waldfogel has not figured in how much value is added, even to a simple pair of socks, because of the affection with which it is given.