In the Agora: The Deadweight Loss of Halloween

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November 01, 2007

The Deadweight Loss of Halloween

We've covered the seeming irrationality of gift-giving at length, but the deadweight loss of Halloween has escaped my attention until this year. Kevin Hassett notes that treats are gifts and the inefficiency of this kind of giving should surely be high. This rests on the supposition that if trick-or-treaters were given all the money their neighbors had spent on candy, they would purchase a different set of candy than what they received -- and that the received set is inferior. Hassett asserts that up to 75% of received treats are undesirable; at $2.1 billion in candy sales, that adds up.

I am skeptical of this view for several reasons, not the least of which is that I think the 75% figure is wildly over-estimated. Trick-or-treating represents a special case of gift-giving.

In more traditional forms, critics of the deadweight theory say that the real value of a gift is not in the amount one would potentially pay for it but in the sentimental attachment. I'd say this is both true and false for trick-or-treating.

Gift-giving on Halloween is as much about the activity as the reward. Collecting candy, even sub-par candy, is more enjoyable than collecting money. In many ways, children derive more utility from candy than money (as Tyler Cowen points out, in-kind transfers can be more efficient than cash gifts, especially for the young). The unpredictability, the anticipation, and the physical act of hauling around loot all contribute to the nonprice value of trick-or-treating. Collecting money would be much less exciting.

A second way that sentiment adds value is due to the relationship between the giver and recipient. It strains credulity that something like this is happening in trick-or-treating. A child will not value that nasty bit of candy he collected just because it came from a kindly neighbor. In the first place, it is unlikely that the child would know even a small fraction of his (adult) neighbors well, and in the second, it is even less likely he would be able to keep track of what candy came from which house.

But doesn't this argue more strongly for a deadweight loss? No, because it lowers the cost of departing with an undesired piece. An unwanted or undervalued Christmas gift is hard to get rid of: it must be exchanged, returned, sold, or donated -- and its absence has to be explained. Children probably are not good at any of these things, as they do not have cars and are bad liars (which raises the question of just how easy it will be for them to spend the money Hassett wants them to have). How do children shed unwanted candy? This is where the real utility of candy comes into play.

Perhaps I am biased because I had lots of siblings, but bartering was a huge post-collection activity in my childhood. Supposing children have a large enough secondary market, unwanted candy can be exchanged until a new, more efficient distribution emerges. This market can last for weeks, prolonging the additional enjoyment children derive from this activity. I also think this is a good way to teach the young about economics.

Finally, another usual argument against the deadweight loss theory seems especially apt here. Children may be exposed to novel types of candy they normally wouldn't buy for themselves; these strange artifacts contribute value in anticipation and, potentially, in discovery of yet another favourite.

All that being said, we can make a solid public policy out of never buying Necco wafers, since no one enjoys them, not even the dog, and feeding Necco wafers to children and dogs is cruel.

Previously:

"The Deadweight Loss of Christmas"
"Economas"
"The Deadweight Loss of Weddings"
"Chipping Away at the Deadweight Loss of Christmas"
"More on the Deadweight Loss of Christmas"
"Gift-Giving From the Heart"
"Best Buy is Smiling"

Posted by Zach Wendling at November 1, 2007 12:16 PM

Comments

Great post.

I think the most valuable part of Halloween is the social capital built in the pursuit of candy and the bartering of noxious candy for better kinds, unless you're one of those loner kids who goes out by her/himself (probably as a "sexy high school student").

Anyone looking to unload some Smarties?

Posted by: DMD at November 1, 2007 04:47 PM | permalink

This is not a difficult problem to solve. All the worthwhile candy is clearly labeled Reese's. Everyone knows this.

Posted by: Joscelynn at November 1, 2007 05:23 PM | permalink

Joscelynn, I believe that you are forgetting that one of the greatest pleasures of Halloween is opening the paper bag in which all of the collected candy is stored, and having the smell of all of the candy roll out into the air. I don't even really like Tootsie Rolls, but there has to be a few of them in there for the smell to be as it should. There also must be a few Almond Joys and the like thrown into the mix, just to make the recipient think, "This experience is something that I could never have paid for myself."

Posted by: Karl at November 1, 2007 10:43 PM | permalink

Call me weird, but I actually love Necco wafers.

I used to trade a bag full of candy corn for every roll. This was useful because a) I hate candy corn and b) everyone else hates Necco wafers. We both got rid of something that we loathed to receive something we enjoyed.

Halloween is our first childhood foray into a free-trade/fair-trade economy.

Posted by: Off Colfax at November 2, 2007 01:39 AM | permalink

When I wrote "Almond Joy," I meant "Mounds."

Posted by: Karl at November 3, 2007 09:51 PM | permalink