How much were those gifts worth anyway?

The debate over the "deadweight loss" of Christmas gift-giving turns, in part, on how we should measure the social value of a gift.

Let's say I give my sister a present costing $100, but she values it no more than $50.  One simple answer is to estimate the deadweight loss by the $50 differential between the two sums.  But how much did I enjoy giving the gift?  I see a few options...

1. I enjoyed the giving at $100, the amount I spent.  In this case the net benefits are $150, yet it took only $100 worth of resources (assuming the gift was produced competitively).  Christmas is an excellent deal.

2. I enjoyed the giving at $50, which was the value to my sister.  I like giving gifts, but only insofar as other people like receiving them.  In this case there is no deadweight loss.  The benefits sum to $100, precisely the social cost of producing the gift.  [Hey, what if my sister enjoys the fact that I enjoy giving to her, I enjoy that she enjoys, and so on...?]

3. I don't enjoy giving at all, but I need to signal attachment to avoid the collapse of my social relationships.  We could then estimate the value of the resulting signaling and sorting effects, but the value of giving is zero.

Now shift gears just a bit.  The U.S. government is running significant unfunded liabilities over the course of the next two generations.  Might we respond by offering  the next generation greater gifts?

If you believe #1 as a more general account of giving, the value to a gift donor is in the personally chosen sacrifice, not the produced net benefit to the recipient.  We have already chosen personally optimal levels of sacrifice, and won't much increase our gift bequests (i.e.,  savings) to help out descendants when their circumstances worsen.   

If you believe #2, we more likely care about how much net value our behavior produces, and not just about the cost of a single sacrifice.  We might then be more inclined to increase savings and bequests to offset future economic difficulties.  If you believe #3, we are selfish and won't save and bequeath any more than we have to.  All of these scenarios can be given different assumptions and twists, but that is my first cut approximation at the correct answers.  Ricardian Equivalence involves some very particular assumptions about the structure of altruism.

The bottom line: The best-case scenario for the value of Christmas is not the best-case scenario for the future of the American economy.  Are you thinking more about what you spent, or more about how much your gifts were enjoyed?  It is the latter scenario that offers cause for a more general economic optimism.

Thanks to Blake for the pointer and query.