What does economic research tell us about festival gifting and alcohol?

The Chinese managed to wrest a large part of the $200 bn Christmas gift market but failed to make a dent in the biggest gift segment, alcohol

Christmas is here, and a lot of people will be drinking a lot of alcohol. What do economists have to say about this? A lot, actually, but not recently. 

Three decades ago, a little-known economist called Joel Waldfogel decided to analyse Christmas gifts. The question he asked was, what's the difference in satisfaction between getting something that you don't want and getting cash? 

He then tried to ascertain how differently, in terms of money, gift receivers would have spent an amount equivalent to the gift's cost. After the usual abracadabra of economics, he concluded that the difference was between $5 billion and $17 billion.

His paper, published in the American Economic Review in 1993, created a real stir and, eventually, the practice of gift coupons. 

He also found that this loss was less in the case of gifts from family than it was for gifts from friends. Obviously, family members have a better idea of a person's utility function. 

Anyway, after a while, when people got over the shock, they started saying this was wrong and that a gift had sentimental value that couldn't be measured in monetary terms. No one, however, said how that sentimental value was to be measured. Anyway, the value lay in the sentiment, not the price. 

Soon enough, other economists started down the same path. They used specific gifts and larger sample sizes. They found the opposite of what Waldfogel had found. Not just that. They found people liked surprises instead of cash. It was thus a draw. 

So in response, Waldfogeal also took a larger sample and found that while the deadweight loss was indeed there, it was less than it had been with a smaller sample. 

That said, it was the Chinese who benefited the most from the $200 billion Christmas gifts market. They started producing these things for the middle and lower ends of the market and soon not only expanded the market size because of affordability, but they also started making things for the better segments by what is politely called "reverse engineering". 

But there's one thing they haven't been able to produce: liquor. Wine is the largest gift item, but for the really important people, like a grandfather, there's whiskey and other spirits. It's a nearly $500 billion market globally. A lot of booze is sold in the western hemisphere, loosely defined as the Christian world, in December, because of Christmas. 

Given how large the market is, I tried to find out what economists have to say about booze. Readers may recall that I had written about this once before also. There doesn't seem to have been much interesting new research since then. 

One piece of research says that consumption is inversely related to price. Another says that price and advertising work mostly on women. A third was on binge drinking by kids and how it affected the labour market — a decade later. The researchers thought that "binge drinking conveys unobserved social skills that are rewarded by employers."

Another research paper said that "a reduction in per capita drinking will result in some people drinking 'too little' and dying sooner than they otherwise would." One finding was that "higher beer taxes lead to a lower incidence of assault, but not rape or robbery." And yet another was that higher beer taxes lead to lower rates of gonorrhoea for males!

And so on. You get the point. 

We in India don't have this deadweight problem because we don't give gifts outside the immediate family, and even there, we stick to clothes and gold or silver coins. Smart.