December 18, 2023

Weekly EconMinute—Deadweight loss of…Christmas?

In this week’s EconMinute, we’re talking about the inefficiency or “deadweight loss” of Christmas.

Economists might be the Grinch that stole Christmas—or wanted to—and here’s why.

While many hurry to buy something for everyone on their list before Christmas, economists shrug their shoulders over the inefficiency or “deadweight loss” of gift-giving.

The idea is pretty simple: when you buy a gift for someone, you guess as to what they would want most with the money you spend. Often, however, the value of the gift to the receiver is less than the cost of the gift (especially if you don’t know the individual well). This difference is called deadweight loss.  

According to research from the U.S., gifts are valued, on average, at 90% of their purchase price, meaning deadweight loss is about 10%. Assuming the same holds true in Canada, we can estimate the amount of deadweight loss this Christmas season will create in the Great White North.

Here is what we found:

  • This year Canadians (18 and over) are expected to spend an average of $645 on holiday gifts, marking a 10% increase from 2022 ($589).
  • Assuming recipients value gifts at 90% of their actual cost, deadweight loss will total about $65 per person (up from $59 last year).  
  • This means a staggering $2 billion will be “lost” in the process of gift-giving.

So, what’s the solution? Technically speaking, gifting cash would be better: instead of the $100 cheeseboard, the giver could spend less, and the receiver could buy what they value most.

That said, economists are occasionally known to be wrong. Even we wouldn’t recommend a cash gift to your children or partner. From personal experience, it doesn’t go over too well.

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