The non-monetary nature of gifts

This paper addresses the prevalence of non-monetary gifts over more highly valued and e$cient monetary transfers in social relationships. We demonstrate that under a wide variety of circumstances, ine$cient non-monetary gifts will be o!ered by a donor in lieu of cash in order to signal the donor's quality of information about the recipient's preferences. This result emerges because gift giving is ine$cient relative to cash, and not because of any arbitrary assumptions regarding communication. In particular, the donor has available the strategy of o!ering cash and saying what he would have purchased. Nonetheless, there is still an important equilibrium role for buying gifts. 2001 Elsevier Science B.V. All rights reserved. JEL classixcation: A13; D10; D64; D82; Z1