Deadweight Loss: The Importance of Holiday Lists

     

       For most people I've talked to, writing lists of gifts one wants for the holidays (or birthdays) makes one come across as greedy. Most people respond with an attitude akin to: "Excuse me, but I put an extremely moderate amount of thought into this gift thus you should be happy regardless as to whether or not you would ever use it in a million years because I thought of you for five minutes and that's a big deal." Of course being thought of for five minutes is a big deal and you should all be grateful that there are people in your lives who acknowledge your existence and are willing to engage in capitalist traditions of spending money on you. However, random, thoughtful gift giving with no guiding resource is not economically efficient in most cases and holiday lists actually show that a person cares about their loved ones enough to want them to optimally allocate their financial resources. Here's why:
       It all comes back to an economic principle known as "deadweight loss." Deadweight loss occurs when the equilibrium of supply and demand is not "Pareto efficient" or, in other words, equilibrium is not at it's most efficient point where no one person could be made better off without someone else's situation worsening. This happens when things like taxation, monopolies, or, as was previously stated, misguided consumers, alter the market in a way that makes for inefficient allocation of resources. In the case of the holidays, this is because most transactions are being carried out by people other than the final consumer. Therefore, these people are extremely likely to spend their money in a way and on things that the final consumer, if given that same amount of money, would not. Obviously, another way around that problem is to simply give people money (gift cards don't work either; they're much too restricting) but that is no fun at all so it is best just to write a holiday shopping list and have your loved one's choose their purchase(s) amoung things they can be assured you will legitimately appreciate and use on more than just a sentimental level. Happy Black Friday, everyone!