Here's Something You Never Asked for, Didn't Know Existed, and Can't Easily Obtain: A Search Model of Gift Giving

Gift giving is thought to be welfare decreasing. This claim rests on two key assumptions, namely, full information as to the whereabouts of all goods and the ability to reach the stores that carry desired goods costlessly. We replace these two assumptions with the more realistic assumptions of uncertainty about the location of goods and search costs. In contrast to existing economic models, gifts in our model are given only when they enhance expected welfare. In fact, the welfare improvement from gift giving is strictly higher than that from any possible equilibrium and gift giving survives the introduction of nearby specialty stores that have access to the same gift goods. We use our model to explain a number of stylized facts about gift giving in modern and foraging societies, the organization of retail trade and in-kind government transfers.