What Money Can't (Shouldn't) Buy: How Markets Crowd Out Morals
By Micheal J. Sandel
What Money Can Buy and Cannot Buy
Consider friendship, suppose you want more friends, would you try to buy some? Not likely. A moemnt's reflection would lead you to realize that it wouldn't work. A hired friend is not the same as a real one. You could hire people to do some of the things that friends typically do. But somehow, the money that buys the friendship dissolves it, or turns it into something else.
Consider Nobel Prize. Even if they auctioned off, the bought award would not be the same as the real thing. The market exchange would dissolve the good that gives the prize its value. This is because the Nobel Prize is an honorific good. To buy it is to undermine the good you are seeking.
Are there some things that money can buy but shouldn't?
Consider a good that can be bought but whose buying and selling is morally controversial -- a human kidney. Some people defend markets in organs for transplantation: others find such markets morally objectionable. The problem is not, as with the Nobel Prize, that the money dissolves the good. The kidney will work regardless of the monetary payment. So to determine whether kidneys should or shouldn't be up for sale, we have to engage in a moral inquiry.
Or consider baby selling. Some years ago, Judge Richard Posner proposed the use of markets to allocate babies put up for adoption. He acknowledged that more desirable babies would command higher prices than less desirable ones. But he argued that the free market would do a better job of allocating babies than the current system of adoption, which allows adoption agencies to charge certain fees but not to auction babies or charge a market price. Many people disagree with Posner's proposal and maintain that children should not be bought and sold, no matter how efficient the market. Like markets in kidneys, a market in babies would not dissolve the good the buyers seek to acquire. A bought baby differs from a bought friend or Nobel Prize. If there were a market in babies for adoption, people who paid the going price would acquire what they wanted -- a child. Whether such a market is morally objectionable is a further question.
So at first glance, there is a sharp distinction between the things that money can't buy (friends, Nobel Prizes), and things that money can buy but arguably shouldn't (kidneys, children). But, this distinction is less clear than it first appears if we look more closely. We can glimpse a connection between the obvious cases, in which the monetary exchange spoils the good being bought, and the controversial cases, in which the good survives the selling but is arguably degraded, or corrupted, or diminished as a result.
Bought apologies and wedding toasts
If you can't buy friendship, what about tokens of friendship, or expressions of intimacy, affection, or contrition? In 2001, NY Times published a story about a company in China that offers an unusual service: if you need to apologize to someone - an estranged lover or business partner with who you've had a falling out -- and you can't quite bring yourself to do so in person, you can hire the Tianjin Apology company to apologize on your behalf. The motto of the company is, "We say sorry for you." According to the article, the professional apologizers are "middle-aged men and women with college degrees who dress in somber suits. They are lawyers, social workers, and teachers with 'excellent verbal ability' and significant life experience, who are given additional training in counseling.
Does a bought apology work? If someone offended you, and then sent a hired apologizer to make amends, would you be satisfied? Would you consider an expensive apology more meaningful than a cheap one? Such that it can't be outsourced?
Consider another social practice closely connected to friendship, a wedding toast to the bride and groom. Traditionally, such toasts are warm, funny, heartfelt expressions of good wishes delivered by the best man, usually the groom's closest friend. But it's not easy to compose an elegant wedding speech, and many best men don't feel up to the task. So some have resorted to buying wedding toasts online. ThePerfectToast.com is one of the leading websites offering ghostwritten wedding speeches. It's been in business since 1997. You answer a questionnaire online -- about how the bride and groom met, how you would describe them, whether you want a humorous speech or a sentimental one -- and within three business days you receive a professionally written custom toast of three to five minutes.The price is $149, payable by credit card. For those who can't afford a bespoke weddin gtoast, other websites, such as InstantWeddingToasts.com sell standard prewritten wedding speeches for $19.95, including a money-back guarantee.
Suppose on your wedding day, your best man delivers a heart-warming toast, a speech so moving it brings tears to your eyes. You later learn that he didn't write it himself but bought it online. Would you care?
It might be argued that presidents and prime ministers routinely employ speechwriters, and no one faults them for it. But a wedding toast is not a State of the Union address. It is an expression of friendship. Although a bought toast might work in the sense of achieving its desired effect, that effect might depend on an element of deception.
Apologies and wedding toasts are goods that can, in a sense, be brought. But buying and selling them changes their character and diminishes their value.
The case against Gifts
Consider now another expression of friendship -- gift giving. Unlike weeding speeches, gifts have an unavoidably material aspect. But with some fits, the monetary aspect is relatively obscure; with others, it is explicit.. Recent decades have brought a trend toward the monetization of gifts, yet another example of the increasing commodification of social life.
Economists don't like gifts. Or be more precise, they have a hard time making sense of gift giving as a rational social practice. From the standpoint of market reasoning, it is almost always better to give cash rather than a gift. If you assume that people generally know their own preferences best, and that the point of giving a gift is to make your friend or love one happy, then it's hard to beat a monetary payment. Even if you have exquisite taste, your friend may not like th etike or necklace you pick out. So if you really want to maximize the welfare your gift provides, don;t buy a present; simply give the money you would have spent. Your friend or lover can either spend the cash on the item you would have bought, or on something that brings even greater pleasure. This is the logic of the economic case against gift giving. It is subject to a few qualifications. if you come across an item that your friend would like but is unfamiliar with -- the latest high tech gadget, it's possible this gift would give your ill-informed friend more pleasure than something he would have bought with the cash equivalent. But this is a special that is consistent with the economist's basic assumption that the purpose of gift giving is to maximize the welfare, or utility, of the recipient.
Joel Waldfogel has taken up the economic inefficiency of gift giving a s a personal cause. By inefficiency, he means the gap between the value to you of the $120 argyle sweater your aunt gave you for your birthday, and the value of what you would have bought (iPod) had she given you the cash. In 1993, Waldfogel drew attention to the epidemic of squandered utility associated with holiday gift giving in an article called "The Deadweight Loss of Christmas" He updated and elaborated the theme in a recent book, Scroogenomics: Why You Shouldn't Buy Presents for the Holidays: The bottomline is that when other people do our shopping, for clothes or music or whatever, it's pretty unlikely that they'll choose as well as we would have chosen for ourselves. We can expect their choices, no matter how well intentioned, to miss the mark. Relative to how much satisfaction their expenditures could have given us, their choices destroy value.
Applying standard market reasoning, Waldfogel concludes that it would be better, in most cases, to give cash: Economic theory -- and common sense -- lead us to expect that buying stuff for ourselves will create more satisfaction, per euro, dollar, or shekel spent, than does buying stuff for others... Buying gifts typically destroys value and can only, in the unlikely best special case, be as good as giving cash.
Beyond playing out the economic logic against gift giving. Waldfogel has conducted surveys to measure how much value this inefficient practice destroys. He asks gift recipients to estimate the monetary value of the gifts they've received, and the amount they would have been willing to pay for them. His conclusion: we value items we receive as gifts 20% less, per dollar spent, than items we buy for ourselves. This 20% figure enables Waldfogel to estimate the total value destruction brought about, nationwide, by holiday gift giving: Given the $65 billion in U.S. holiday spending per year, that means we get $13 billion less in satisfaction than we would receive if we spent that money the usual way -- carefully, on ourselves. Americans celebrate the holidays with an orgy of value destruction.
If gift giving is a massively wasteful and inefficient activity, why do we persist in it? It isn't easy to asnwer within standard economic assumptions. Gergory Mankiw tries gamely to do so. He begins by observing that gift giving is a strange custom but concedes that it's generally a bad idea to give your boyfriend cash instead of a birthday present. But why? Mankiw's explanation is that gift giving is a mode of "signaling"., an ecnomist's term for using markets to overcome "information asymmetries." For example, a firm with a good product buys expensive advertising, not only to persuade customers directly but also to signal to them that it is confident enough in the quality of tis product to udnertake a costly advertising campaign. In a similar way, gift giving serves a signaling function. A man contemplating a gift for his girlfriend has private information that the girlfriend would like to know: does he really love her? Choosing a good gift for her is a signal of his love. Since it takes time and effort to look for a gift, choosing an apt one is a way for him to convey the private information of his love for her.
This is a strangely wooden way to think about lovers and gifts. "Signaling love is not the same as expressing it. To speak of signaling wrongly assumes that love is a piece of private information that one party reports to the other. If this were the case, then cash would work as well -- the higher the payment, the stronger the signal, and the greater presumably the love. But love is not only, or mainly, a matter of private information. It is a way of being with and responding to another person. Giving, especially attentive giving, can be an expression of it. On the expressive account, a good gift not only aims to please, in the sense of satisfying the consumer preferences of the recipient. It also engages and connects with the recipient, in a way that reflects a certain intimacy. This is why thoughtfulness matters.
Not all gifts, of course, can be expressive in this way.
If you are attending the wedding of a distant cousin, or the bar mitzvah of a business associate's child, it is probably better to buy something from the wedding registry or give cash. But to give money rather than a well-chosen gift to a friend, lover, or spouse is to convey a certain thoughtless indifference. It's like buying your way out of attentiveness.
Economists know that gifts have an expressive dimension, even if the tenets of their discipline can't account for it. The economist in me says the best gift is cash, the rest of me rebels (Alex Tabarrok, an economist and blogger). He offers a good counterexample to the utilitarian notion that the ideal gift is an item we would have bought for ourselves Suppose someone gives you $100 and b=you buy a set of tires for your car. This is what maximizes your utility. Still, you might not be terribly happy if your lover gave you car tires for your birthday. In most cases, tabarrok points out, we'd rather the gift giver buy us something less mundane, something we wouldn't buy for ourselves. From out intimates at least, we'd rather receive a gift that speaks to the wild self, the passionate self, the romantic self.
He's onto something.
the reason gift giving is not always an irrational departure from efficient utility maximizing is that fits aren't only about utility. Some gifts are expressive of relationships that engage, challenge, and reinterpret our identities. this is because friendship is about more than being useful to one another. It is also about growing in character and self-knowledge in the company of others. As Aristotle taught, friendship at its best has a formative, educative purpose. to monetize all forms of giving among friends can corrupt friendship by suffusing it with utilitarian norms.
Even economists who view gift giving in utilitarian terms can't help noticing that cash gifts are the exception, not the rule, especially among peers, spouses, and significant others. For Waldfogel, this is a source of the inefficiency he decries. So what, in his view, motivates people to persist a habit that produce a massive destruction of value? It's simply the fact that cash is considered a tacky gift that carries a stigma. He does not ask whether people are right or wrong to regard cash gifts as tacky. Instead, he treats the stigma as a brute sociological fact of no normative signifcance apart from its unfortunate tendency to reduce utility.
The only reason that so much Christmas giving is in-kind rather than cash is the stigma of cash giving, Wadlfogel writes, if there were no stigma, then givers would give cash, and recipients would choose items that they really want, resulting in the most possible satisfaction given the amounts spent. Dubner and Levitt offer a similar view: the reluctance to give cash gifts is, for the most part, a social taboo that crushes the economist's dream of a beautifully efficient exchange.
The economic analysis of gift giving illustrates, in a small domain, two revealing features of market reasoning. First, it shows how market reasoning smuggles in certain moral judgments, despite its cliam to be value neutral. Waldfogel doesn't assess the validity of the stigma against cash gifts, he never asks whether it might be justified. He simply assumes it is an irrational obstacle to utility, a dysfunctional institution that should ideally be overcome. He doesn't consider the possibility that the stigma against monetary gifts may reflect norms worth preserving, such as norms of attentiveness bound up with friendship.
To insist that the purpose of all gifts is to maximize utility is to assume, without argument, that the utility-maximizing conception of friendship is morally the most appropriate one, and that the right way to treat friends is to satisfy their preferences -- not to challenge or deepen or complicate them.
So the economic case against gift giving is not morally neutral. It presupposes a certain conception of friendship, one that many consider impoverished. And yet, whatever its moral deficiency, the economic approach to gift giving is gradually taking hold This brings us to the second revealing feature of the gift example. Contestable though its moral assumptions may be, the economic way of thinking about gifts is coming to be true. Over the past two decades, the monetary aspect of gift giving has come closer to the surface.
Monetizing Gifts
Consider the rise of gift cards, rather than search for just the right gift, holiday shoppers are increasingly giving certificates or cards with a certain monetary value that can be redeemed for merchandise at retail stores. Gift cards represent a halfway house between choosing a specific gift and giving cash. They make life easier for shoppers and give recipients a greater range of options., and yet, it's somehow different from giving money. True, the recipient knows exactly how much you spent; the monetary value is explicit. But despite the fact, a gift card from a particular store carries less of a stigma than simply giving cash. Perhaps the element of thoughtfulness conveyed by the choice of an appropriate store eases the stigma, at least to some degree.
From the standpoint of economic reasoning, the turn to gift cards is a step in the right direction. The reason? Although gift cards reduce the "deadweight loss" of presents, they don't eliminate it entirely. Suppose your uncle gives you a $100 gift card redeemable at Home Depot. That would be better than a hundred-dollar tool kit you don't want. But if you are not keen on home improvement items, you'd rather have the cash. Money, after all, is like a gift card that is redeemable anywhere.
Not surprisingly, a market solution to this problem has already appeared. A number of online companies now buy gift cards for cash (at a price lower than their face value) and resell them. A company called Plastic Jungle will buy your $100 Home Depot gift card for $80 and then resell it for $93. The discount rate varies according to the popularity of the store.
For economists concerned with the deadweight loss of gifts, this secondary market quantifies the utility loss you impose on recipients by giving gift cards rather than money: the higher the discount rate, the greater the gap between the value of a gift card and the value of cash. Of course none of this captures the thoughtfulness and attentiveness that traditional gift giving expresses. These virtues are attenuated in the shift from presents to gift cards and, finally, to cash.
One economist who studies gift cards suggests a way to reconcile the economic efficiency of cash with the old-fashioned virtue of thoughtfulness: Gift-givers planning on giving a gift card might want to bear in mind the possible benefit of a cash gift with a note to the recipient suggesting that the money could be spent at (insert the name of store here)-- to add the thought that counts.
Giving money along with a cheery note advising the recipient where to spend it is the ultimate deconstructed gift. It's like packaging the utilitarian component and the expressive norm in two separate boxes, tied together with a bow.
An article in The NY Times describes as follows: suppose your aunt gives you a fruitcake for Christmas. The fruitcake company sends you an e-mail informing you of the thoughtful gift and giving you the option of accepting delivery, exchanging it for something else, or sending the fruitcake to an unsuspecting person on your gift list. Since the transaction takes place online, you don't ahve to bother repacking the item and taking it to the post office. If you opt for regifting, the new recipient is offered the same options. So it;s possible that the unwanted fruitcake could ricochet its way indefinitely through cyberspace.
One possible snafu: depending on the retailer's disclosure policy, each recipient on the fruitcake's journey might be able to learn of its itinerary. This could be embarrassing. Learning that the fruitcake had been cast aside by several previous recipients and was now being fobbed off on you would likely dampen your gratitude for the gift and dissolve its expressive value. It would be like discovering that your best friend had purchased that heartwarming wedding toast online.
Bought honor
Honorific goods are vulnerable to corruption in a similar way. A Nobel Prize can't be bought. But what about other forms of honor and recognition? Consider honorary degrees. Colleges and universities confer honorary degrees on distinguished scholars, scientists, artists, and public officials. But some recipients are philanthropists who have contributed large sums to the institution bestwoing the honor. Are such degrees bought, in effect, or are they genuinely honorific?
If the college's reasons were baldly stated, the transparency would dissolve the good.
Similar questions can be asked about the buying and selling of admission to elite universities. Universities don't hold auctions for admission, at least not explicitly. Many selective colleges and universities could increase their revenues if they sold seats in the freshman class to the highest bidder. But even if they wanted to maximize revenue, universities would not auction off all the places. Doing so would reduce demand, not only reducing academic quality but also by undermining the honorific aspect of admission. Suppose, however, that most of the places were allocated according to merit, but a few were quietly made available for sale. Let's also suppose that many factors entered into admissions decisions -- grades, SAT scores, extracurricular activities, racial, ethnic, geographical diversity, athletic prowess, legacy status (being the child of an alumnus) -- so that it was hard to tell, in any given case, which factors were decisive. Under conditions such as these, universities could sell some places to wealthy donors without undermining the honor that people associate with admission to a top school. Defenders of these practices argue that private universities depend heavily on financial contributions from alumni and wealthy donors, and that such contributions enable universities to provide scholarships and financial aid to less affluent students.
The idea of selling admission is open to two objections. One is about fairness; the other is about corruption. The fairness objection says that admitting children of wealthy donors in exchange for a handsome donation to the college fund is unfair to applicants who lacked the good judgment to be born to affluent parents. This objection views a college education as a source of opportunity and access and worries that giving an edge to children of the wealthy perpetuates social and economic inequality. The corruption objection is about institutional integrity. This objection points out that higher education not only equips students for remunerative jobs; it also embodies certain ideals -- the pursuit of truth, the promotion of scholarly and scientific excellence, the advancement of humane teaching and learning, the cultivation of civic virtue. Although all universities need money to pursue their ends, allowing fund-raising needs to predominate runs the risk of distorting these ends and corrupting the norms that give universities their reason for being. That the corruption objection is about integrity -- the fidelity of an institution to its constitutive ideals -- is suggested by the familiar charge of "selling out".
What Money Can Buy and Cannot Buy
Consider friendship, suppose you want more friends, would you try to buy some? Not likely. A moemnt's reflection would lead you to realize that it wouldn't work. A hired friend is not the same as a real one. You could hire people to do some of the things that friends typically do. But somehow, the money that buys the friendship dissolves it, or turns it into something else.
Consider Nobel Prize. Even if they auctioned off, the bought award would not be the same as the real thing. The market exchange would dissolve the good that gives the prize its value. This is because the Nobel Prize is an honorific good. To buy it is to undermine the good you are seeking.
Are there some things that money can buy but shouldn't?
Consider a good that can be bought but whose buying and selling is morally controversial -- a human kidney. Some people defend markets in organs for transplantation: others find such markets morally objectionable. The problem is not, as with the Nobel Prize, that the money dissolves the good. The kidney will work regardless of the monetary payment. So to determine whether kidneys should or shouldn't be up for sale, we have to engage in a moral inquiry.
Or consider baby selling. Some years ago, Judge Richard Posner proposed the use of markets to allocate babies put up for adoption. He acknowledged that more desirable babies would command higher prices than less desirable ones. But he argued that the free market would do a better job of allocating babies than the current system of adoption, which allows adoption agencies to charge certain fees but not to auction babies or charge a market price. Many people disagree with Posner's proposal and maintain that children should not be bought and sold, no matter how efficient the market. Like markets in kidneys, a market in babies would not dissolve the good the buyers seek to acquire. A bought baby differs from a bought friend or Nobel Prize. If there were a market in babies for adoption, people who paid the going price would acquire what they wanted -- a child. Whether such a market is morally objectionable is a further question.
So at first glance, there is a sharp distinction between the things that money can't buy (friends, Nobel Prizes), and things that money can buy but arguably shouldn't (kidneys, children). But, this distinction is less clear than it first appears if we look more closely. We can glimpse a connection between the obvious cases, in which the monetary exchange spoils the good being bought, and the controversial cases, in which the good survives the selling but is arguably degraded, or corrupted, or diminished as a result.
Bought apologies and wedding toasts
If you can't buy friendship, what about tokens of friendship, or expressions of intimacy, affection, or contrition? In 2001, NY Times published a story about a company in China that offers an unusual service: if you need to apologize to someone - an estranged lover or business partner with who you've had a falling out -- and you can't quite bring yourself to do so in person, you can hire the Tianjin Apology company to apologize on your behalf. The motto of the company is, "We say sorry for you." According to the article, the professional apologizers are "middle-aged men and women with college degrees who dress in somber suits. They are lawyers, social workers, and teachers with 'excellent verbal ability' and significant life experience, who are given additional training in counseling.
Does a bought apology work? If someone offended you, and then sent a hired apologizer to make amends, would you be satisfied? Would you consider an expensive apology more meaningful than a cheap one? Such that it can't be outsourced?
Consider another social practice closely connected to friendship, a wedding toast to the bride and groom. Traditionally, such toasts are warm, funny, heartfelt expressions of good wishes delivered by the best man, usually the groom's closest friend. But it's not easy to compose an elegant wedding speech, and many best men don't feel up to the task. So some have resorted to buying wedding toasts online. ThePerfectToast.com is one of the leading websites offering ghostwritten wedding speeches. It's been in business since 1997. You answer a questionnaire online -- about how the bride and groom met, how you would describe them, whether you want a humorous speech or a sentimental one -- and within three business days you receive a professionally written custom toast of three to five minutes.The price is $149, payable by credit card. For those who can't afford a bespoke weddin gtoast, other websites, such as InstantWeddingToasts.com sell standard prewritten wedding speeches for $19.95, including a money-back guarantee.
Suppose on your wedding day, your best man delivers a heart-warming toast, a speech so moving it brings tears to your eyes. You later learn that he didn't write it himself but bought it online. Would you care?
It might be argued that presidents and prime ministers routinely employ speechwriters, and no one faults them for it. But a wedding toast is not a State of the Union address. It is an expression of friendship. Although a bought toast might work in the sense of achieving its desired effect, that effect might depend on an element of deception.
Apologies and wedding toasts are goods that can, in a sense, be brought. But buying and selling them changes their character and diminishes their value.
The case against Gifts
Consider now another expression of friendship -- gift giving. Unlike weeding speeches, gifts have an unavoidably material aspect. But with some fits, the monetary aspect is relatively obscure; with others, it is explicit.. Recent decades have brought a trend toward the monetization of gifts, yet another example of the increasing commodification of social life.
Economists don't like gifts. Or be more precise, they have a hard time making sense of gift giving as a rational social practice. From the standpoint of market reasoning, it is almost always better to give cash rather than a gift. If you assume that people generally know their own preferences best, and that the point of giving a gift is to make your friend or love one happy, then it's hard to beat a monetary payment. Even if you have exquisite taste, your friend may not like th etike or necklace you pick out. So if you really want to maximize the welfare your gift provides, don;t buy a present; simply give the money you would have spent. Your friend or lover can either spend the cash on the item you would have bought, or on something that brings even greater pleasure. This is the logic of the economic case against gift giving. It is subject to a few qualifications. if you come across an item that your friend would like but is unfamiliar with -- the latest high tech gadget, it's possible this gift would give your ill-informed friend more pleasure than something he would have bought with the cash equivalent. But this is a special that is consistent with the economist's basic assumption that the purpose of gift giving is to maximize the welfare, or utility, of the recipient.
Joel Waldfogel has taken up the economic inefficiency of gift giving a s a personal cause. By inefficiency, he means the gap between the value to you of the $120 argyle sweater your aunt gave you for your birthday, and the value of what you would have bought (iPod) had she given you the cash. In 1993, Waldfogel drew attention to the epidemic of squandered utility associated with holiday gift giving in an article called "The Deadweight Loss of Christmas" He updated and elaborated the theme in a recent book, Scroogenomics: Why You Shouldn't Buy Presents for the Holidays: The bottomline is that when other people do our shopping, for clothes or music or whatever, it's pretty unlikely that they'll choose as well as we would have chosen for ourselves. We can expect their choices, no matter how well intentioned, to miss the mark. Relative to how much satisfaction their expenditures could have given us, their choices destroy value.
Applying standard market reasoning, Waldfogel concludes that it would be better, in most cases, to give cash: Economic theory -- and common sense -- lead us to expect that buying stuff for ourselves will create more satisfaction, per euro, dollar, or shekel spent, than does buying stuff for others... Buying gifts typically destroys value and can only, in the unlikely best special case, be as good as giving cash.
Beyond playing out the economic logic against gift giving. Waldfogel has conducted surveys to measure how much value this inefficient practice destroys. He asks gift recipients to estimate the monetary value of the gifts they've received, and the amount they would have been willing to pay for them. His conclusion: we value items we receive as gifts 20% less, per dollar spent, than items we buy for ourselves. This 20% figure enables Waldfogel to estimate the total value destruction brought about, nationwide, by holiday gift giving: Given the $65 billion in U.S. holiday spending per year, that means we get $13 billion less in satisfaction than we would receive if we spent that money the usual way -- carefully, on ourselves. Americans celebrate the holidays with an orgy of value destruction.
If gift giving is a massively wasteful and inefficient activity, why do we persist in it? It isn't easy to asnwer within standard economic assumptions. Gergory Mankiw tries gamely to do so. He begins by observing that gift giving is a strange custom but concedes that it's generally a bad idea to give your boyfriend cash instead of a birthday present. But why? Mankiw's explanation is that gift giving is a mode of "signaling"., an ecnomist's term for using markets to overcome "information asymmetries." For example, a firm with a good product buys expensive advertising, not only to persuade customers directly but also to signal to them that it is confident enough in the quality of tis product to udnertake a costly advertising campaign. In a similar way, gift giving serves a signaling function. A man contemplating a gift for his girlfriend has private information that the girlfriend would like to know: does he really love her? Choosing a good gift for her is a signal of his love. Since it takes time and effort to look for a gift, choosing an apt one is a way for him to convey the private information of his love for her.
This is a strangely wooden way to think about lovers and gifts. "Signaling love is not the same as expressing it. To speak of signaling wrongly assumes that love is a piece of private information that one party reports to the other. If this were the case, then cash would work as well -- the higher the payment, the stronger the signal, and the greater presumably the love. But love is not only, or mainly, a matter of private information. It is a way of being with and responding to another person. Giving, especially attentive giving, can be an expression of it. On the expressive account, a good gift not only aims to please, in the sense of satisfying the consumer preferences of the recipient. It also engages and connects with the recipient, in a way that reflects a certain intimacy. This is why thoughtfulness matters.
Not all gifts, of course, can be expressive in this way.
If you are attending the wedding of a distant cousin, or the bar mitzvah of a business associate's child, it is probably better to buy something from the wedding registry or give cash. But to give money rather than a well-chosen gift to a friend, lover, or spouse is to convey a certain thoughtless indifference. It's like buying your way out of attentiveness.
Economists know that gifts have an expressive dimension, even if the tenets of their discipline can't account for it. The economist in me says the best gift is cash, the rest of me rebels (Alex Tabarrok, an economist and blogger). He offers a good counterexample to the utilitarian notion that the ideal gift is an item we would have bought for ourselves Suppose someone gives you $100 and b=you buy a set of tires for your car. This is what maximizes your utility. Still, you might not be terribly happy if your lover gave you car tires for your birthday. In most cases, tabarrok points out, we'd rather the gift giver buy us something less mundane, something we wouldn't buy for ourselves. From out intimates at least, we'd rather receive a gift that speaks to the wild self, the passionate self, the romantic self.
He's onto something.
the reason gift giving is not always an irrational departure from efficient utility maximizing is that fits aren't only about utility. Some gifts are expressive of relationships that engage, challenge, and reinterpret our identities. this is because friendship is about more than being useful to one another. It is also about growing in character and self-knowledge in the company of others. As Aristotle taught, friendship at its best has a formative, educative purpose. to monetize all forms of giving among friends can corrupt friendship by suffusing it with utilitarian norms.
Even economists who view gift giving in utilitarian terms can't help noticing that cash gifts are the exception, not the rule, especially among peers, spouses, and significant others. For Waldfogel, this is a source of the inefficiency he decries. So what, in his view, motivates people to persist a habit that produce a massive destruction of value? It's simply the fact that cash is considered a tacky gift that carries a stigma. He does not ask whether people are right or wrong to regard cash gifts as tacky. Instead, he treats the stigma as a brute sociological fact of no normative signifcance apart from its unfortunate tendency to reduce utility.
The only reason that so much Christmas giving is in-kind rather than cash is the stigma of cash giving, Wadlfogel writes, if there were no stigma, then givers would give cash, and recipients would choose items that they really want, resulting in the most possible satisfaction given the amounts spent. Dubner and Levitt offer a similar view: the reluctance to give cash gifts is, for the most part, a social taboo that crushes the economist's dream of a beautifully efficient exchange.
The economic analysis of gift giving illustrates, in a small domain, two revealing features of market reasoning. First, it shows how market reasoning smuggles in certain moral judgments, despite its cliam to be value neutral. Waldfogel doesn't assess the validity of the stigma against cash gifts, he never asks whether it might be justified. He simply assumes it is an irrational obstacle to utility, a dysfunctional institution that should ideally be overcome. He doesn't consider the possibility that the stigma against monetary gifts may reflect norms worth preserving, such as norms of attentiveness bound up with friendship.
To insist that the purpose of all gifts is to maximize utility is to assume, without argument, that the utility-maximizing conception of friendship is morally the most appropriate one, and that the right way to treat friends is to satisfy their preferences -- not to challenge or deepen or complicate them.
So the economic case against gift giving is not morally neutral. It presupposes a certain conception of friendship, one that many consider impoverished. And yet, whatever its moral deficiency, the economic approach to gift giving is gradually taking hold This brings us to the second revealing feature of the gift example. Contestable though its moral assumptions may be, the economic way of thinking about gifts is coming to be true. Over the past two decades, the monetary aspect of gift giving has come closer to the surface.
Monetizing Gifts
Consider the rise of gift cards, rather than search for just the right gift, holiday shoppers are increasingly giving certificates or cards with a certain monetary value that can be redeemed for merchandise at retail stores. Gift cards represent a halfway house between choosing a specific gift and giving cash. They make life easier for shoppers and give recipients a greater range of options., and yet, it's somehow different from giving money. True, the recipient knows exactly how much you spent; the monetary value is explicit. But despite the fact, a gift card from a particular store carries less of a stigma than simply giving cash. Perhaps the element of thoughtfulness conveyed by the choice of an appropriate store eases the stigma, at least to some degree.
From the standpoint of economic reasoning, the turn to gift cards is a step in the right direction. The reason? Although gift cards reduce the "deadweight loss" of presents, they don't eliminate it entirely. Suppose your uncle gives you a $100 gift card redeemable at Home Depot. That would be better than a hundred-dollar tool kit you don't want. But if you are not keen on home improvement items, you'd rather have the cash. Money, after all, is like a gift card that is redeemable anywhere.
Not surprisingly, a market solution to this problem has already appeared. A number of online companies now buy gift cards for cash (at a price lower than their face value) and resell them. A company called Plastic Jungle will buy your $100 Home Depot gift card for $80 and then resell it for $93. The discount rate varies according to the popularity of the store.
For economists concerned with the deadweight loss of gifts, this secondary market quantifies the utility loss you impose on recipients by giving gift cards rather than money: the higher the discount rate, the greater the gap between the value of a gift card and the value of cash. Of course none of this captures the thoughtfulness and attentiveness that traditional gift giving expresses. These virtues are attenuated in the shift from presents to gift cards and, finally, to cash.
One economist who studies gift cards suggests a way to reconcile the economic efficiency of cash with the old-fashioned virtue of thoughtfulness: Gift-givers planning on giving a gift card might want to bear in mind the possible benefit of a cash gift with a note to the recipient suggesting that the money could be spent at (insert the name of store here)-- to add the thought that counts.
Giving money along with a cheery note advising the recipient where to spend it is the ultimate deconstructed gift. It's like packaging the utilitarian component and the expressive norm in two separate boxes, tied together with a bow.
An article in The NY Times describes as follows: suppose your aunt gives you a fruitcake for Christmas. The fruitcake company sends you an e-mail informing you of the thoughtful gift and giving you the option of accepting delivery, exchanging it for something else, or sending the fruitcake to an unsuspecting person on your gift list. Since the transaction takes place online, you don't ahve to bother repacking the item and taking it to the post office. If you opt for regifting, the new recipient is offered the same options. So it;s possible that the unwanted fruitcake could ricochet its way indefinitely through cyberspace.
One possible snafu: depending on the retailer's disclosure policy, each recipient on the fruitcake's journey might be able to learn of its itinerary. This could be embarrassing. Learning that the fruitcake had been cast aside by several previous recipients and was now being fobbed off on you would likely dampen your gratitude for the gift and dissolve its expressive value. It would be like discovering that your best friend had purchased that heartwarming wedding toast online.
Bought honor
Honorific goods are vulnerable to corruption in a similar way. A Nobel Prize can't be bought. But what about other forms of honor and recognition? Consider honorary degrees. Colleges and universities confer honorary degrees on distinguished scholars, scientists, artists, and public officials. But some recipients are philanthropists who have contributed large sums to the institution bestwoing the honor. Are such degrees bought, in effect, or are they genuinely honorific?
If the college's reasons were baldly stated, the transparency would dissolve the good.
Similar questions can be asked about the buying and selling of admission to elite universities. Universities don't hold auctions for admission, at least not explicitly. Many selective colleges and universities could increase their revenues if they sold seats in the freshman class to the highest bidder. But even if they wanted to maximize revenue, universities would not auction off all the places. Doing so would reduce demand, not only reducing academic quality but also by undermining the honorific aspect of admission. Suppose, however, that most of the places were allocated according to merit, but a few were quietly made available for sale. Let's also suppose that many factors entered into admissions decisions -- grades, SAT scores, extracurricular activities, racial, ethnic, geographical diversity, athletic prowess, legacy status (being the child of an alumnus) -- so that it was hard to tell, in any given case, which factors were decisive. Under conditions such as these, universities could sell some places to wealthy donors without undermining the honor that people associate with admission to a top school. Defenders of these practices argue that private universities depend heavily on financial contributions from alumni and wealthy donors, and that such contributions enable universities to provide scholarships and financial aid to less affluent students.
The idea of selling admission is open to two objections. One is about fairness; the other is about corruption. The fairness objection says that admitting children of wealthy donors in exchange for a handsome donation to the college fund is unfair to applicants who lacked the good judgment to be born to affluent parents. This objection views a college education as a source of opportunity and access and worries that giving an edge to children of the wealthy perpetuates social and economic inequality. The corruption objection is about institutional integrity. This objection points out that higher education not only equips students for remunerative jobs; it also embodies certain ideals -- the pursuit of truth, the promotion of scholarly and scientific excellence, the advancement of humane teaching and learning, the cultivation of civic virtue. Although all universities need money to pursue their ends, allowing fund-raising needs to predominate runs the risk of distorting these ends and corrupting the norms that give universities their reason for being. That the corruption objection is about integrity -- the fidelity of an institution to its constitutive ideals -- is suggested by the familiar charge of "selling out".
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