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The Economic Theory of Gift-Giving: Perfect Substitutability of Transfers and Redistribution of Wealth

In: Handbook of the Economics of Giving, Altruism and Reciprocity


  • Mercier Ythier, Jean


This chapter reviews the theory of the voluntary public and private redistribution of wealth elaborated by economic analysis in the last forty years or so. The central object of the theory is altruistic gift-giving, construed as benevolent voluntary redistribution of income or wealth. The theory concentrates on lump-sum voluntary transfers, individual or collective, which aim at equalizing the distribution of wealth from altruistic reasons or sentiments (perfectly substitutable altruistic transfers). It implies: (i) the Pareto-inefficiency of the non-cooperative interaction of individual altruistic transfers; (ii) the neutralization of public transfers by individual altruistic transfers; (iii) and the crowding out of private altruistic transfers by Pareto-efficient public redistribution. The chapter is organized as follows. Section 2 presents an informal overview of the general intent and content of the theory. Section 3 gives a first formal version of the theory in a one-commodity setup (pure distributive social system). Non-cooperative distributive equilibrium is characterized, and its fundamental properties of existence and determinacy are analyzed. Section 4 extends the definitions and fundamental properties of pure distributive social systems to general social systems that combine competitive market exchange with the non-cooperative altruistic transfers of individuals endowed with non-paternalistic interdependent preferences. Section 5 states the neutrality property in two versions of the theory successively: the general social systems of Section 4; and the important special case of the pure distributive social systems of Section 3, where the set of agents is partitioned in two subsets, namely, a subset of "poor" individuals with zero endowments and egoistic preferences, and a subset of "rich" individuals altruistic to the poor and indifferent to each other. Section 6 reviews the theory of Pareto-efficient redistribution in pure distributive social systems. Section 7 returns to the fundamental assumption of perfect substitutability of transfers through a selective review of theoretical models of imperfectly substitutable transfers and empirical tests of perfect substitutability.

Suggested Citation

  • Mercier Ythier, Jean, 2006. "The Economic Theory of Gift-Giving: Perfect Substitutability of Transfers and Redistribution of Wealth," Handbook on the Economics of Giving, Reciprocity and Altruism, in: S. Kolm & Jean Mercier Ythier (ed.), Handbook of the Economics of Giving, Altruism and Reciprocity, edition 1, volume 1, chapter 5, pages 227-369, Elsevier.
  • Handle: RePEc:eee:givchp:1-05

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    Cited by:

    1. Principe, Kristine E. & Eisenhauer, Joseph G., 2009. "Gift-giving and deadweight loss," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(2), pages 215-220, March.
    2. Kaplan, Todd R. & Ruffle, Bradley J., 2009. "In search of welfare-improving gifts," European Economic Review, Elsevier, vol. 53(4), pages 445-460, May.
    3. Deffains, Bruno & Mercier Ythier, Jean, 2010. "Optimal production of transplant care services," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 638-653, October.
    4. Bruno Deffains & Jean Mercier Ythier, 2009. "Optimal production of transplant care services," Working Papers of BETA 2009-19, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    5. Laura Birg & Anna Goeddeke, 2016. "Christmas Economics—A Sleigh Ride," Economic Inquiry, Western Economic Association International, vol. 54(4), pages 1980-1984, October.
    6. Buchholz, Wolfgang & Cornes, Richard & Peters, Wolfgang & Rübbelke, Dirk, 2015. "Pareto improvement through unilateral matching of public good contributions: The role of commitment," Economics Letters, Elsevier, vol. 132(C), pages 9-12.
    7. Jean Mercier-Ythier, 2010. "The Aggregation of Individual Distributive Preferences through the Distributive Liberal Social Contract : Normative Analysis," Working Papers of BETA 2010-01, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

    More about this item

    JEL classification:

    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification


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