Aspectos éticos

Thus far the focus has been on the properties of gift-giving. In this subsection these findings are related to another exchange mechanism: the market.

Recall once again that gifts in kind are usually taken to be a social waste be-cause the recipient could have achieved a higher utility level from an equally costly cash-gift. Problematic in this respect is that in the environment of gift-giving, in-dividual rationality sometimes prescribes to give in kind rather than in cash (see

1 0Though a reasonable alternative explanation is that framing effects play parts. Note also that the signifi-cance of this evidence is undecisive as there may be many more institutions that do not publish names.

proposition 2). The market mechanism does not suffer from this tendency. This has warranted researchers to conclude that, compared to the market, gift-giving creates a deadweight loss. Subsequent calculations accredited to Christmas gifts a deadweight loss in the range of 10-30% of their value (Waldfogel [1993]).

In the research done by Waldfogel [1993] and in the follow-up studies (Solnick and Hemenway [1996] and Waldfogel [1996]) it is tacitly assumed that the giver is indifferent between giving in cash and in kind. However, as found in questionnaires (see e.g. Webley and Wilson [1989]) and in line with Proposition 2, givers are not at all indifferent but clearly prefer to give in kind. This has consequences for the measurement of the deadweight loss. True, turning to the market prevents inadequacy. But insofar as the market is an anonymous institution, it does not realize this valuable psychological sentiment called approval. It is for that reason not obvious that gift-giving creates a deadweight loss. The trade-off to be made is that between adequacy and approval. In neglecting the latter part of this trade-off one tends to overestimate the size of the deadweight loss, if there is any.

Of equal interest is how the market institution interacts with gift-giving. There are instructive examples that show how the opening of a market leads to a crowding-out of gift-giving (Hirsch [1976], Yellen [1990]). There are hints that this crowding-out is detrimental to social welfare. The keypoint is that the links between the market institution and gift-giving are shot through with externalities (see in particular Kranton [1996a] and Dasgupta [2000], and chapter 4). As Hirsch [1976, 78] puts it, “social relationships do not, by their nature, have the character of private economic goods.” Indeed, when the !Kung tribe gained access to mar-kets which were superior in the supply of goods, they abolished gift-giving and at the same time retreated from their social life, eroding the cohesion of society (Yellen [1990]).

Yet, there is also another side to the coin. Where the market is an efficient institution, gift-giving can be a hindrance. Kranich [1994] points out that when gifts are permitted, an efficient equilibrium need not be reached. For instance, gift-giving acquires the character of a public good in case agents have preferences over the economy’s entire allocation of income rather than just their own income.

As another example, recall that due to moral hazard the market does not pro-vide full insurance. Nonmarket insurers (such as a family) may therefore want to supplement the market. Arnott and Stiglitz [1991] then show that when these nonmarket insurers have no better information than market insurers, reciprocal

assistance not only crowds out market insurance but is also harmful and therefore dysfunctional.

On the more positive side can gift-giving be a useful complement to the market institution in case the latter fails. Consider the supply of a public good. The market creates no incentives to contribute at all because individually it does not pay off in terms of consumption. Social approval at least gives some incentives, although there is nothing that guarantees that gift-giving for the sake of obtaining approval continues up to the point where the supply is optimal. Gift-giving can complement the market to a certain extent, though additional incentives are likely to be needed in order to reach the optimal amount of gifts.

In providing these additional incentives, it is probably not unfair to say that the effects on social approval are usually neglected when it comes to institutions being recipients. The right way to stimulate giving then seems obvious: compensate donors directly for the efforts. This is exactly the measure that was expected to alleviate the shortage of blood donations. However, quite unexpectedly to many, the actual change in the supply of blood turned out to be negative (see Titmuss [1970]). Other studies that show this pattern emerges in different settings as well include Gneezy and Rustichini [2000] and Frey [1997a], [1997b] (see also chapter 7). Yet, this kind of behavior is only surprising insofar as the object of human behavior is material gain. A higher compensation makes you richer and it makes giving relatively cheaper. For that reason one should indeed, if anything, increase one’s gift. On the other hand is there the effect on social approval. Rewarding gift-giving reduces sacrifice, and as argued before, there is evidence that sacrifice is positively correlated with social approval. Hence, rewarding gift-giving deprives the agent from the opportunity to realize social approval. This latter effect reduces the incentives to give and makes the end outcome ambiguous.

Consider therefore the case where the receiver does not make a countergift but gives a monetary compensation instead. Thus, set l^v₂ = 0and denote by w^v the compensation the institution offers for each unit of voluntary labor. The forgone wage of giving is now ˜w_i ≡ w^mi −w^v >0.I say that sacrifice is relatively important if the approval rate is sensitive to the sacrifice made: i.e. ∂β_i/∂w˜_i is high.

Proposition 4 (Compensation): With a preference for social approval, the op-timal gift size of player 1 is decreasing in compensation (dl₁^v/dw^v < 0) if the

absolute elasticity of u⁰_s is less than unity and if sacrifice is relatively important (∂β₁/∂w˜1 high).

Corollary 1 If compensation crowds out gift-giving then welfare is reduced:

∂u₁/∂w^v <0 if dl^v₁/dw^v <0.

Proof. With l^v₂ = 0, player 1’s utility function becomes (ignoring fixed para-meters): u1 = u1(l₁^v(w^v), w^v). Differentiating at the optimum with respect to w^v high enough such that compensation reduces gift-giving, then compensation also reduces welfare.

The intuition is again straightforward. If sacrifice is relatively important then every unit of voluntary labor is valued a lot less when sacrifice is a little bit lower. This reduces the incentives to give if compensation is offered. There is also a positive effect on social approval since a lower β reduces s and this increases marginal utility of giving. But this latter effect is always dominated by the former effect as long as the absolute elasticity of u⁰_s is smaller than one. Furthermore, by Corollary 1 the deprivation of social approval is in this case enough to reduce utility.

A result similar to proposition 4 is obtained by Holländer [1990] who argues that the opening of a market reduces incentives to give to a public good. If the market (or government) provides some of the public good, then the marginal benefits of the public good declines and under his specification this means that less approval is obtained for each contribution.

It should be emphasized that crowding-out is not a general phenomenon, but Frey and Jegen [2002] conclude that there exists compelling empirical evidence that it does occur on some occasions. To appreciate the significance of this to

its fullest extent, note that gifts in the form of bequests can affect the long-run growth of an economy (see Galor and Zeira [1993]). The insight gained is therefore of importance, so much the more Frey [1997b] argues that in addition there are spill-over effects.¹¹ For example, spill-over effects to other activities or spill-overs over time may occur. Thus, the social approval that can be obtained for giving this particular good can influence the approval for giving some other good.

Or, not unreasonably, social approval is time dependent.¹² Giving an inadequate gift reduces social approval now, but persistently giving inadequate gifts reduces social approval even more in the future. Albeit these are interesting extensions of the model, it would be too speculative to elaborate upon them at the present state. More should be known about the exact determinants and shape of the social approval function, as well as its dynamics. Nonetheless, the conclusion can be drawn that one should be very careful with the implementation of market incentives in non-market institutions. This can result in unintended consequences that are harmful to social welfare.