Gift cards are booming in popularity. However, gift cards lack the sentimental value of a physical present and have similar properties of cash gifts, such as revealing the total amount spent. Moreover, gift cards can produce welfare losses between the giver and the recipient. This loss in the transfer from giver to recipient is estimated at 15 percent of the orginal amount spent, increasing to 20 percent when the eBay seller transaction costs are included. If the projected $80 billion is indeed spent on gift cards in 2007, then a welfare loss would be equal to $16 billion.
That is Jennifer Pate Offenberg in the Spring issue of The Journal of Economic Perspectives. Essentially, this welfare loss arises from the stigma of giving cash. I have always been fascinated with the fact that giving cash is viewed as inappropriate, yet gift cards are somehow more acceptable. The gift card, as Offenberg points out, is simply a cash gift with a restriction on where the gift can be spent.
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