Academic journal article Economic Inquiry

Gifts, Cash, and Stigma

Academic journal article Economic Inquiry

Gifts, Cash, and Stigma

Article excerpt


Each year individuals in the United States transfer between $50 and $72 billion in resources to friends and family members in the form of noncash holiday gifts, despite the fact that holiday gift recipients apparently value their noncash gifts at about 10% less than the prices paid by the givers. (1) Cash gifts are rather rare, accounting for under 15% of gifts to college-aged recipients. The ubiquity of noncash gifts poses a puzzle to the idea that gift givers are rational, with at least three possible explanations. First, gift-givers' choices of gifts versus cash may not be determined by a comparison of costs and benefits. Second, gift givers may not be directly concerned with the utility of their recipients, that is, they may be paternalistic rather than altruistic, in the sense of the distinction raised by Pollak (1988). (2) Third, gift givers may be rational and nonpaternalistic but may behave as if recipients valued $x in cash less than a noncash gift they value at $x, which one could alternatively vie w as a stigma associated with cash gifts or a "surplus" associated with noncash gifts?

The strategy for studying the prevalence of noncash gifts is first to analyze a new and relatively large data set on holiday gift giving to college students. In particular, I examine how average gift yields (the ratio of recipient valuation to the price the recipient estimates the giver paid) and the tendency to give cash vary with giver and recipient characteristics. The new data set has information about over 3400 cash and noncash gifts to college students, of which 2400 are usable for extensive analysis. I examine how yields and the tendency to give cash vary by the relationship between giver and recipient, the frequency of contact between giver and recipient, the ethnicity and religion of the recipient, and the price of the gift.

Second, I examine the relationship between yields and the tendency to give cash, across groups of givers, in an effort to learn the motivation behind the decision to give cash. I find a strong negative relationship between average yields on noncash gifts and the tendency to give cash. Cash giving is more likely from givers who tend to give unwanted gifts, indicating that givers are concerned with the utility of their recipients and, in turn, that the decision to give cash is economic.

Though cash gifts are more likely from less efficient noncash gift givers, they are nevertheless surprisingly rare, if givers are attempting to maximize recipient utility associated with material aspects of the gifts. This motivates the third goal, estimation of a simple structural model of the decision to give cash, incorporating the possibility of both flat and variable relative stigma attached to giving cash. (4) I find strong evidence that the gift/cash decision is made as if influenced by a relative stigma of giving cash that I am able to parameterize and quantify. Relative stigma resolves the puzzle of infrequent cash gifts despite givers' apparent tendency toward efficient gift giving.

Holiday gift-giving behavior is interesting both intrinsically and as a potentially significant form of intrafamily resource transfer. Cox (1987) reports that bequests totaled over $70 billion, and inter vivos transfers topped $100 billion in 1979 (both scaled to 1993 dollars using the consumer price index). On the basis of retail spending, annual holiday gift giving (excluding cash gifts) is estimated at $50-72 billion. (5) Holiday gift giving is not just a sizable component of intra family (and friend) resource transfer; because of its pervasiveness it may facilitate operative intergenerational links among individuals not otherwise likely to engage in bequests or inter vivos transfers.

Economists have recently postulated various motives for gift giving, including signaling and the correction of externalities among intimate individuals. (6) The idea that the choice of gift versus cash--the object of the present study--is influenced by economic factors need not be inconsistent with those other motives. …

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