The dynamic efficiency of gifting

Abstract In his Scroogenomics , Joel Waldfogel argues that gifting creates enormous deadweight loss, as individuals give one another gifts they do not want or cannot use. He views efficiency static, calculating the gains from trade (or gifting) at moment of transaction. A puzzle arises, however, when realizes has been a nearly ubiquitous institution throughout history. If wastes valuable resources, why does it persist? We argue gift giving is dynamically efficient despite possibility generating short-term loss. well-functioning market economy requires expanded social networks and trustworthiness among anonymous quasi-anonymous exchange partners. Gifting allows to signal by offering ‘burnt sacrifices’. practices include willingness sacrifice via reciprocity norms, public visibility ritual will tend promote generalized trust. consider these four elements – sacrifice, reciprocity, publicness, be critical institutional design principles for fostering dynamic efficiency. Our essay contributes literature on economics prompting scholars think about long-term (dynamic) efficiencies generated cultural appear inexplicably inefficient.