How Christmas gifts destroy value

Were you satisfied with your Christmas presents, or have you perhaps already exchanged some of them? Private consumer spending is at its peak in December, mainly due to Christmas gifts. According to GDI calculations, more than CHF 2 billion were spent on them in 2023. While this additional consumption injects money into the Swiss economy, some economists argue that significant value is destroyed through gift-giving.
4 January, 2024 by
How Christmas gifts destroy value
GDI Gottlieb Duttweiler Institute
 

The principle of consumption is simple: when supply meets demand and the price is right for both the seller and the buyer, a transaction occurs. For instance, buyers only purchase something for CHF 100 if it is worth at least CHF 100 to them. However, it's a bit different with gifts. These are not bought for yourself, but for others. That means if someone spends CHF 100 on a gift that doesn't perfectly match the recipient's taste or that he or she has no use for, that item is worth less than CHF 100 to the recipient. At worst, it could be worthless. In such a case, the recipient might sell the gift for significantly less than the purchase price, give it to someone else, never use it or simply throw it away.

Economists refer to this negative difference between the purchase price and the value the gift holds for the recipient as a “loss of welfare”. It's a loss because the invested amount (e.g. the purchase price of CHF 100) is lower than the perceived benefit (its worth to the recipient, e.g. CHF 90). The better the gift aligns with the recipient's preferences, the smaller this welfare loss.

The research

Research has shown that even if the recipient finds a use for the gift or derives some benefit from it, the gift is significantly less valuable to them on average than its purchase price. Several scientific experiments have demonstrated a welfare loss of 10-30% on gifts. Economists therefore recommend giving gift cards, which, given their similarity to cash, presumably incur a lesser loss of value. However, recipients even view gift cards as being worth less than cash. An analysis  vof nearly 30,000 cards offered on a gift card resale platform revealed an average 9% loss of value compared to cash. Moreover, it's assumed that a considerable proportion of gift cards is either not redeemed at all or only used in part.

The estimated impact in Switzerland

GDI researchers Gianluca Scheidegger and Johannes Bauer quantified the extent of this welfare loss based on scientific studies and a recent survey of planned Christmas gift expenditure among the adult Swiss population:

Planned per-capita expenditure on Christmas gifts in 2023: CHF 282
Adult population in Switzerland: 7,232,157
Total expenditure on Christmas gifts in 2023: CHF 2,039,468,274
Welfare loss (conservative assumption: 10%): CHF 203,946,827

At least CHF 204 million were likely wasted on gifts this Christmas because they didn't match the recipients' preferences precisely.

This calculation is intended as a thought experiment only. It doesn't account for the symbolic and emotional value of gifts, but focuses solely on the disparity between the actual monetary value and that perceived by the recipient.

About the authors

Dr. Gialuca Scheidegger

Dr. Gianluca Scheidegger is a Senior Researcher and speaker at the GDI Gottlieb Duttweiler Institute. He analyses social, economic, and technological changes with a focus on retail and consumer behaviour.

LEARN MORE

Dr. Johannes C. Bauer

Dr Johannes C. Bauer is Head Think Tank at the Gottlieb Duttweiler Institute. In his research, he examines changes in consumer and purchasing behaviour, the future of retail against the backdrop of long-term consumer, technology and business model trends, as well as the opportunities and risks of digitalisation for business and society.

LEARN MORE

Share this post
Archive