The Deadweight Loss of Christmas: Comment

Field: Economics, Econometrics and Finance (Social Sciences)

Two previous surveys used to measure the welfare implications of Christmas gift-giving in the United States have reached opposite conclusions. Joel Waldfogel (1993) finds a welfare reduction of 13 percent or more associated with Christmas giving. Curiously, Sara J. Solnick and David Hemenway’s (1996) (henceforth, SH) replication of Waldfogel’s survey turns up just the opposite result: a 214-percent welfare gain. We design a series of controlled laboratory experiments to determine why the two papers arrive at opposite conclusions. We do not produce our own estimate of the deadweight loss of gift-giving; rather, our aim is to understand how, and which among, the differences in methodology between the two studies account for their divergent findings. Waldfogel (1993) surveyed 58 students enrolled in an intermediate microeconomics class about specific gifts they had received for Christmas. He asked recipients to estimate the amount paid by the giver for each gift received. Recipients were then asked to place a value on each gift they received. Respondents were instructed to estimate the value of a gift as the “...amount of cash such that you are indifferent between the gift and the cash, not counting the sentimental value of the gift” (p. 1331). Waldfogel measures the welfare yield of a gift as the difference between the recipient’s valuation and her cost estimate of the gift. Based on 278 gifts reported, Waldfogel finds that gifts have an average yield of 87.1 percent, indicating that gifts lose about 13 percent of their value in the exchange from giver to receiver. When cash gifts are excluded, the average yield falls further to 83.9 percent. SH were intrigued enough by Waldfogel’s results to replicate his study. Contrary to Waldfogel, SH find that gift-giving is actually welfare improving with an average yield of 214 percent (median yield 111 percent). They claim that a broader subject pool than that questioned by Waldfogel explains the reversal. Concerned that undergraduates in an intermediate microeconomics class may be unrepresentative, SH administered their survey to members of the general public at train stations and airports and to staff and graduate students enrolled in a biostatistics or an economics class at the Harvard School of Public Health. They also altered the question used to elicit respondents’ valuations of gifts received. Their survey question reads as follows (p. 1300): “Aside from any sentimental value, if, without the giver ever knowing, you could receive an amount of money instead of the gift, what is the minimum amount of money that would make you equally happy?” The change in wording from “the amount of cash such that you are indifferent” to the “amount of money that would make you equally happy” was prompted by a concern that “indifference” is a technical word familiar only to economists. It remains to be seen whether SH’s “equally happy” question is substantially equivalent to the “indifference” version of the question or whether they have introduced a greater change than they realize. An additional methodological concern is that the cost estimates always precede respondents’ valuations in both studies. Order effects are well documented in the social psychology literature: cost estimates may influence valuations. In particular, costs may serve as a judgmental anchor upon which to base value estimates. Reversing the order of the questions is a technique common to survey and experimental methods in the social sciences to balance the researcher’s design and offset possible order effects. * Ruffle: Department of Economics, Ben Gurion University, P.O.B. 653, Beer Sheva, 84105, Israel (e-mail: bradley@bgumail.bgu.ac.il); Tykocinski: Department of Behavioral Sciences, Ben Gurion University, Beer Sheva, 84105, Israel (e-mail: oritt@bgumail.bgu.ac.il). We thank Tomer Bakalash for research assistance and Sara Solnick, Todd Kaplan, three anonymous referees of this journal, and seminar participants at Ben Gurion University, Universite Louis Pasteur, and the 1998 ESA meetings in Mannheim for comments. 1 Howard Schuman and Stanley Presser (1981) provide a good starting point in this literature.