Discussion Post
Read The Deadweight Loss of Christmas, by Joel Waldfogel, American Economic Review, December 1993.
Answer the following questions.
A. Suppose you and a friend both agree to exchange gifts that you will each purchase for $40. You do not tell each other beforehand what you would like to receive as a gift. How could that gift exchange lead to a deadweight loss?
B. Waldfogel writes that some types of gift-giving lead to smaller deadweight losses (i.e. are more efficient) than others. When will gift giving produce a small deadweight loss?
C. Describe a scenario where the deadweight loss from exchanging gifts will be a large fraction of the total purchase price of those gifts. Explain why the deadweight loss in your scenario will be high.
D. Describe the information Waldfogel asks for in his first survey. Then describe the information Waldfogel asks for in his second survey.
E. Briefly summarize the results of the survey.
F. How is this analysis related to Medicaid, Medicare and food stamps?