Sunday, January 16, 2011

Bad Gift Insurance

Joel Waldfogel's "The Deadweight Loss of Christmas" always makes for fun classroom discussion. The main point is that recipients of gifts often value a gift less than the giver did or even less than the giver paid. In a survey, recipients valued every $1 of gift cost at $0.80. Or, if they had sent cash instead, they could send 20% less and we would be just as happy. Some have argued that the difference represents a social loss to society. More to the point, it represents a miss-allocation of assets and, thus, a profit opportunity.

Amazon has stepped in and patented a potential solution. We know that there are good gift givers and bad gift givers. For example, your Aunt Mildred's proclivity for giving fruit cakes and ugly clown figurines makes her a known poor gift giver. Every year, you bear the expense and hassle of returning her gifts. Amazon proposes to intercept Aunt Mildred's gift before it is sent and convert it into cash (or a near equivalent) for you. You must tag Aunt Mildred as a gift offender allowing Amazon to convert her expenditure on bad gifts into a gift card. Of course, this does affect the whole idea of gift giving - Miss Manners does not approve.

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