Is it Really the thought that Counts?

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Abstract
As a social institution, the exchange of goods as gifts is difficult to reconcile with the theory of rational choice. A gift of money allows the recipient to choose the goods to consume according to his own preferences, thereby presumably providing the maximum satisfaction per dollar given. The article shows that when individuals' utilities depend on others' consumption of particular goods, gifts of goods can be preferable to gifts of money. It shows further, by an example, that gift giving can be a Pareto-superior equilibrium of noncooperative individual behavior.

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