Here ’ s something you never asked for , didn ’ t know existed , and can ’ t easily obtain : A search model of gift giving

Gift giving is thought to be welfare decreasing. This claim rests on two key assumptions, namely, full information as to the whereabouts of all goods and the ability to reach the stores that contain desired goods costlessly. In this paper, we replace these two assumptions with the more realistic assumption of uncertainty about the location of goods. As a result, search costs ensue. In sharp contrast to existing economic models of gift giving, gifts in our model are given only when they enhance expected welfare, that is, the amount they save the receiver looking for the gift himself is higher than the expected price of unwanted gifts. The more difficult it is for the recipient to obtain the good he desires or the lower the price of this good, the more likely he is to receive it as a gift. Search costs affect not only the decision to give but also the choice of gift. We characterize the relationship between gift giving and the giver’s information about the recipient’s preferences as well as her information about the gifts available in the economy. We use our model to explain a number of stylized facts about gift giving in modern and primitive societies. keywords: gift giving, search, welfare, refunds Journal of Economic Literature classification numbers: A12, D60, D83. ∗Correspondence to: Bradley Ruffle, Department of Economics, Ben-Gurion University, P.O.B. 653, Beer Sheva, 84105, Israel, fax: 972-7-6472941, e-mail: [email protected]