Is kindness economically efficient?

When I was a sophomore in college my microeconomics professor talked about gift giving as an example of an economically inefficient cultural practice. The lesson of the day was on how human beings efficiently allocate their resources. When we have the freedom to choose exactly how to spend our money, economic theory tells us, then we can maximize our own personal well-being. But when given a gift, some of this freedom is removed; in efficiency terms, it would be much better just to give cash and let the recipient figure out on his or her own how to spend it.

There was one important caveat: As my professor put it, when two people exchange a gift there are some “warm fuzzies” involved, a benefit that we can’t easily quantify. It’s one thing to go out and get what you want, but it’s particularly special and heartwarming when a loved one is thoughtful enough to get it for you. On a related note, let me digress for a moment and offer some free advice to all men reading this: Don’t ever give your wife or girlfriend cash as a gift, no matter how big an econ nerd you think you are. You run the risk of injury, death, or worse.

For whatever reason, recently I’ve been hyper-sensitive to all the subtle ways that economic efficiency and basic humanity butt heads, just as is the case when it comes to gift giving. And when it comes to this subject, the example that keeps smacking me in the face is my morning commute to work.

Continue reading