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Christmas gifts are a hassle. Why do we bother?



The knitted magenta item Aunt Myrtle gave me wasn’t exactly on my must-have list. “Oooh,” I said admiringly, but the look of slight confusion on my face must have betrayed my true sentiments.

Mom leaned over and whispered, “What is it?”

“I’m not sure.” I held it up, pretending to admire its workmanship while attempting to determine its function.

“Well, it’s the thought that counts.” Mom was right, of course.

Why give gifts?

We spend a lot of time and energy getting gifts for our loved ones. Yet a look at the return lines in many stores this time of year seems to indicate our time could be better spent wrapping a corresponding amount of cash. Why don’t we? It’s the thought that counts.

It’s not simply the amount of money used to purchase a gift that matters. It’s the fact that someone took time to think about us, to try to find something they thought we might enjoy, and to acquire and deliver it to us. The costs they incur are one expression of the value they place on our relationship.

Many of you have recently experienced these types of costs firsthand on your own quest to find the perfect present for that special someone in your life. Figuring out what gift to get someone is its own problem, but even if you know precisely what they want, you still have to contend with what economists call transaction costs. These are the costs associated with finding someone to exchange with, negotiating the terms of the exchange, and enforcing the exchange.

How do I get that?

Perhaps little Ralphie told you exactly what was on his Christmas list this year — a Red Ryder BB gun (carbine action, two-hundred shot range model). Perfect! Your Christmas shopping will be done in no time! Or will it? Where are you going to get a Red Ryder?

And so it begins — the first of the many transaction costs that will be incurred to ensure Ralphie is happy on Christmas morning.

Fortunately for you, Red Ryder BB guns are still in production, and a quick search reveals a couple online retailers as well as a few eBay sellers. A short while later, you have a good idea of the going price for the gun. You could buy it for a little less on eBay, but you choose a bigger retailer instead. Their shipping costs are straightforward, and they have a clear return policy, so you know there will be fewer hassles if you have any problems.

You fill in the online form, willingly revealing your email address in return for the sales receipt, though you know it will also result in seeing their advertisements in your inbox for years to come. You add billing information, choose two-day shipping, and check the box in agreement with the retailer’s terms.

When the package arrives a couple days later, you wrap it, put it under the tree, and breathe a sigh of relief. The transaction and all its associated costs have been completed. Ralphie will have his best Christmas yet.

Transaction costs are part of every exchange we make, but they tend to be more noticeable this time of year. Buying Christmas gifts isn’t the same as your weekly grocery-shopping trip — these aren’t exchanges you are familiar with or make often — so it is likely to take considerably more time to find what you are looking for, at terms you are willing to agree upon and can be assured will be adhered to. We have to put a lot more thought and effort into the exchange process.

But that’s what counts.

Article by Charity-Joy Revere, Director of the Office of Economic Education and Lecturer in Economics at the University of Arizona. Originally published at

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