Thursday, December 6, 2012

Are Gifts Exchange?

In one of the most interesting passages in one of the most important articles in the pedagogy of economics, R. A. Radford has this to say:

Very soon after capture people realized that it was both undesirable and unnecessary, in view of the limited size and the equality of supplies, to give away or to accept gifts.... ‘Goodwill’ developed into trading as a more equitable means of maximizing individual satisfaction...
Now, isn't that interesting?  Using gifts, in a repeated bargaining situation is not just inefficient (though it is that).  It is also more equitable to use exchange.  If I give a gift, and expect something in return, that is an exchange.  When does this kind of relation cross a line into exchange?  And if a gift requires a reciprocal gift, is giving a gift a problem for euvoluntary exchange?  Should I refuse the gift, if I reject the implied reciprocal obligation?

An interesting study offers some insights:

You Owe Me , Ulrike Malmendier & Klaus Schmidt , NBER Working Paper, November 2012

Abstract: In many cultures and industries gifts are given in order to influence the recipient, often at the expense of a third party. Examples include business gifts of firms and lobbyists. In a series of experiments, we show that, even without incentive or informational effects, small gifts strongly influence the recipient's behavior in favor of the gift giver, in particular when a third party bears the cost. Subjects are well aware that the gift is given to influence their behavior but reciprocate nevertheless. Withholding the gift triggers a strong negative response. These findings are inconsistent with the most prominent models of social preferences. We propose an extension of existing theories to capture the observed behavior by endogenizing the "reference group" to whom social preferences are applied. We also show that disclosure and size limits are not effective in reducing the effect of gifts, consistent with our model. Financial incentives ameliorate the effect of the gift but backfire when available but not provided.

UPDATE:  Continuation on how the law handles obligations and gifts, under tax code...

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Do you have suggestions on where we could find more examples of this phenomenon?