In search of welfare-improving gifts

Todd R. Kaplan, Bradley J. Ruffle

Research output: Contribution to journalArticlepeer-review

14 Scopus citations

Abstract

Gift giving is thought to decrease welfare. Recipients are sometimes stuck with gifts they would not have purchased because the giver does not perfectly know the recipient's preferences and in-kind gifts cannot be costlessly refunded. Such gifts are welfare reducing compared to giving cash if, in addition, recipients possess full information as to which stores carry their desired goods and the ability to reach these stores costlessly. We replace these two latter assumptions with the more realistic assumptions of uncertainty about the location of goods and search costs. In contrast to existing economic models, gifts in our model enhance expected welfare. Moreover, gift giving cannot be replaced by a profit-maximizing trader nor the introduction of nearby specialty stores carrying gift goods. We use our model to explain a number of stylized facts about gift giving, the organization of retail trade and in-kind government transfers.

Original languageEnglish
Pages (from-to)445-460
Number of pages16
JournalEuropean Economic Review
Volume53
Issue number4
DOIs
StatePublished - 1 May 2009

Keywords

  • Gift giving
  • Refunds
  • Retailing
  • Search
  • Welfare

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