Tuesday, December 1, 2009

Joel Waldfogel

Joel Waldfogel is the Ehrenkranz Professor and Chair of Business and Public Policy at the Wharton School of the University of Pennsylvania. He is the author of The Tyranny of the Market and has been a columnist for Slate.

From Salon.com's Mary Elizabeth Williams' interview with him about his latest book, Scroogenomics: Why You Shouldn't Buy Presents for the Holidays:

You talk in the book about the concept of "deadweight loss" and how it applies to holiday spending. Can you explain that?

A deadweight is a loss to one party that's not a gain to someone else. Normally if I spend $50 on myself it's for something worth at least $50 to me. If I spend $50 on you, and I don't know what you like or already have, I could buy something that's worth nothing for you. That's a loss. The average difference in gift satisfaction between the giver and recipient is about 20 percent.

But we're a consumer culture. We generally like to shop. Why, then, do the holidays go so wrong?

Normal spending, when we're buying for ourselves, provides a measure of satisfaction. The problem with gift giving is that's not what is going on. Usually in shopping there are two parties. There are buyers and sellers. The seller gets a price that's bigger than the cost he bought it for, and the buyer gets an item he values above the price. That generates profit and satisfaction.

The thing about gift giving is the seller still gets a profit, but on the consumer side the recipient does not get the same amount of satisfaction.

It's good for the seller, but it's not good for the buyer or the giver.

There's this idea that any gesture is better than no gesture at all, even if it's from the table of useless golf alarm clocks. You call it being socialized "to perpetuate the wastefulness."

My issue is...[read on]
Visit Joel Waldfogel's personal website and his faculty webpage.

Joel Waldfogel is Chair and Ehrenkranz Family Professor of Business and Public Policy at The Wharton School of the University of Pennsylvania.

The Page 99 Test: The Tyranny of the Market.

--Marshal Zeringue