The deadweight loss of Christmas

20th December, 2003

Dear Economist is a column published in the Financial Times magazine and, usually, on their website. This did not appear on the website and I’ve taken the liberty of posting it here.

Dear Economist,

I don’t want to be a Scrooge, but every year the Christmas extravaganza seems like a pointless hassle. Isn’t it all just a waste of time and money?


— “Ebenezer”, London

Dear Ebenezer,

I have some sympathy with you. Christmas presents are wasteful, and we even know how wasteful: 16 per cent. This figure comes from surveys by economist Joel Waldfogel, who asked how much cash his respondents would have been willing to pay to buy their Christmas presents. The answer is, sadly, 16 per cent less than what they cost.

The most inappropriate gifts, costing 50 per cent more than their value to the recipients, come from elderly relatives. Sensibly, many elect to give cash instead. Unsurprisingly, friends and partners give less wasteful gifts. It’s interesting to note that the most wasteful presents are those that cost roughly between Pounds 25 and Pounds 50 – expensive enough to assuage the guilt of a hurried choice, but cheap enough not to require double-checking with those close to the recipient.

But giving isn’t the only example of seasonal waste. While some Christmas cards are sent out of genuine goodwill, many Christmas card exchanges are sub-optimal equilibria. In other words, both parties are only sending cards to reciprocate last year’s card. Both would happily agree to stop, but it is embarrassing to be the first after so many years of mechanical exchange.

However, rather than abandoning Christmas altogether as a lost cause, bear in mind that there is an emotional side to our annual ritual. Waldfogel’s research explicitly excludes the “sentimental value” of gifts. You can make sure that the sentimental benefits outweigh the cost by giving smaller presents but taking more care over them. If you must give to those whose tastes you do not understand, send cash.

As for Christmas cards, wipe your Christmas card list and send cards only to those who you truly wish to. It may feel awkward to strike so many people off your list, but it will at least spare them the hassle of sending you a card next year.

If you feel that further explanation is required, send them a copy of this article – surely the ultimate yuletide gift.

Merry Christmas.

This week’s Economist is Tim Harford, the FT’s 2003 Peter Martin Fellow.

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