Holiday Shopping? Consider the Most Economically Efficient Gift of All: Cash, to Avoid Deadweight Loss

Steven Landsburg in the "Armchair Economist: Economics and Everyday Experience."

"I am not sure why people give each other store-bought gifts instead of cash, which is never the wrong size or color. Some say that we give gifts because it shows that we took the time to shop. But we could accomplish the same thing by giving the cash value of our shopping time, showing that we took the time to earn the money."

In the 1993 American Economic Review article "The Deadweight Loss of Christmas," Yale economist Joel Waldfogel estimated that holiday gift-giving destroys between 10% and a third of the value of gifts.  Reason? The best the gift-giver can do is to duplicate the choice the gift-recipient would have made on his or her own with the cash-equivalent of the gift.  In reality, it's much more likely that the recipient will be worse off with the gift chosen by the gift-giver than if the recipient had made his or her own choice with the cash.

In the Seinfeld episode above, Elaine takes the standard view and doesn't appreciate Jerry's gift of cash, even though he took the time to gift-wrap the cash.