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In search of welfare-improving gifts

Author

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  • Kaplan, Todd R.
  • Ruffle, Bradley J.

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.

Suggested Citation

  • Kaplan, Todd R. & Ruffle, Bradley J., 2009. "In search of welfare-improving gifts," European Economic Review, Elsevier, vol. 53(4), pages 445-460, May.
  • Handle: RePEc:eee:eecrev:v:53:y:2009:i:4:p:445-460
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    References listed on IDEAS

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    Cited by:

    1. Laura Birg & Anna Goeddeke, 2016. "Christmas Economics—A Sleigh Ride," Economic Inquiry, Western Economic Association International, vol. 54(4), pages 1980-1984, October.
    2. Michel André Maréchal & Christian Thöni, 2016. "Hidden persuaders: do small gifts lubricate business negotiations?," ECON - Working Papers 227, Department of Economics - University of Zurich, revised May 2018.
    3. Maroš Servátka & Steven Tucker & Radovan Vadovič, 2011. "Building Trust—One Gift at a Time," Games, MDPI, Open Access Journal, vol. 2(4), pages 1-22, September.

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