Gift giving is inefficient from an economic point of view. It’s an example of ‘expensive signaling.’
My kids come racing down the stairs on Christmas morning like it’s a jailbreak—feet pounding, voices high, eyes wide, charging toward the tree as if Santa personally negotiated a trade deal with their deepest desires overnight. I’m happy for them. But every year, as wrapping paper detonates across the living room and a small mountain of objects emerges—some beloved, some baffling—I have the same unseasonal thought: This is wildly inefficient.
Christmas is, among other things, an elaborate logistical operation devoted to giving people things they wouldn’t have bought for themselves at prices they wouldn’t have paid. The modern economy can route a package across the country in hours, match riders with drivers in seconds, and price airline seats in real time. But every December we collectively suspend optimization and replace it with a ritual that specializes in misallocation.
All I ever wanted for Christmas is optimal gift-giving. Not more gifts. Not better gifts. Optimal gifts—maximum happiness per dollar, minimal waste, and a distribution mechanism that respects revealed preference. Thankfully, the world is too sane to oblige.
Continue reading the entire piece here at The Wall Street Journal (paywall)
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Roland G. Fryer, Jr., a John A. Paulson Fellow at the Manhattan Institute, is Professor of Economics at Harvard University, an entrepreneur, and co-founder of Equal Opportunity Ventures.
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