SECRET SANTA REVEALS THE SECRET SIDE OF GIVING

I. INTRODUCTION At Christmas, large families and groups of friends often organize secret Santa gift exchanges in which each participant gives and receives one gift rather than giving and receiving gifts from everyone. Participants typically draw names from a hat to assign each persona secret Santa. Organizers claim that a secret Santa gift exchange will benefit participants in two ways. The first is obvious: buying and wrapping one large gift is easier than buying and wrapping several smaller gifts. This benefit suggests that a secret Santa gift exchange lowers the cost of gift giving, and so we would expect to see a corresponding increase in holiday spending. However, organizers also claim that a secret Santa gift exchange will save participants' money, while allowing them to give and receive more meaningful gifts. This benefit suggests that a secret Santa gift exchange will reduce holiday spending, as a participant who would otherwise give ten gifts worth $12 each will be inclined to give one gift worth something less than $120. (1) While this behavior seems reasonable, it raises some revealing questions about the nature of generosity--questions that conventional models of generosity cannot answer. For example, why would a secret Santa gift exchange reduce holiday spending, and if it does, why would a reduction in holiday spending benefit participants? A secret Santa gift exchange is essentially a cooperative gift-giving agreement. In conventional models of generosity, cooperation benefits participants because giving carries a positive externality. This externality occurs because giving brings enjoyment to the giver, the receiver, and (possibly) third parties. For example, when a grandmother gives her grandchild a new bicycle, both benefit. In addition, the child's parents may benefit from their child receiving a bike that they did not have to pay for. In models with positive externalities, cooperation makes everyone better off by increasing the total amount of giving. Conversely, cooperation in a secret Santa gift exchange makes everyone better off by decreasing the total amount of giving. By doing so, a secret Santa gift exchange may reveal a hidden aspect of giving: negative externalities. The idea that giving could be associated with a negative externality may seem somewhat unphilanthropic. However, this article shows that several reasonable philanthropic assumptions, such as impact philanthropy and social comparison, unavoidably lead to negative gift externalities. For example, the grandmother's gift of a new bicycle might diminish the impact of the parent's gift. One cousin might give a larger gift to avoid being labeled as the cousin who gives the smallest gift. A husband might buy an expensive gift for his wife fearing that his wife will buy him an expensive gift. All these motives imply a negative gift externality. For the purposes of this article, the important feature of a secret Santa gift exchange is that it concentrates each person's gift rather than spreading it around. This gift concentration is unique, in that it is done without eliminating recipients. For example, agreeing to give Christmas presents only to the youngest children in a family would concentrate gifts but not in the same way as a secret Santa gift exchange. Rather, a secret Santa gift exchange concentrates gifts not by eliminating recipients but by restricting the way gifts are allocated among recipients. In fact, the idea of restricting the way gifts are allocated among a group of recipients is not limited to the secret Santa gift exchange. It is also seen in common fund-raising strategies, such as a children's organization that allows a donor to sponsor an individual child rather than contribute to a general fund. Setting aside the possible motives for this fundraising strategy, sponsoring children raises an interesting philanthropic question. If, at the end of the day, 1,000 needy children are fed, does a donor feel more satisfied if he or she fed one child or if he or she provided each of these thousand children with a single grain of rice? …