A Note on Subsidizing Gifts

13 Pages Posted: 8 Jul 2000

See all articles by Louis Kaplow

Louis Kaplow

Harvard Law School; National Bureau of Economic Research (NBER)

Date Written: September 1994

Abstract

Altruistically motivated gifts involve a species of consumption externality. Donors obtain an altruistic benefit from the effect of their gifts on donees' utility but do not take into account that the benefit to donees is itself relevant to social welfare. The level of gift-giving thus will be lower than is optimal. A subsidy can correct this problem, while compulsory transfers (assuming the state lacks information about who is altruistic) and bargaining between donors and donees cannot. The rationale for subsidizing gifts offered here does not depend on whether the donee's activity is a public good (as with gifts for medical research) or whether the transfer tends to equalize the wealth of donors and donees -- factors emphasized in the existing literature on the subject.

Suggested Citation

Kaplow, Louis, A Note on Subsidizing Gifts (September 1994). NBER Working Paper No. w4868. Available at SSRN: https://ssrn.com/abstract=226499

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