Saturday, September 30, 2006

Gift Economy x 2

No man is so wealthy that he objects to receiving
A gift in exchange for his gift

I was thinking recently about the idea of a gift economy, an idea that sometimes shows up in discussions of open source software, and it occurred to me that there are really two quite different things covered by the term, both familiar to most of us in our ordinary life.

You invite a friend and his wife over for dinner, enjoy their company, invite them again. Pretty soon they will feel an obligation to reciprocate, to invite you over for dinner or, if that isn't convenient, invite you to a restaurant and insist on paying the bill. It will never occur to them that they might balance the account by offering you twenty dollars instead, and you would be shocked and, probably, offended if they did.

That is a gift economy of just the sort described in the bit of Havamal quoted above, composed somewhat over a thousand years ago. The transactions are exchanges, value for value, but they take the form of nominally voluntary gifts rather than the bargained exchanges of ordinary trade. As an economist I do not have a satisfactory theory of why we do things that way—and would like to—but as a participant in such an economy I at least know how it feels from the inside.

The second kind of gift economy occurred to me in a discussion with a friend whose interests include the history of fencing and 19th century dancing. He routinely spends a week each year teaching the latter at Newport and has just been making arrangements to make his very extensive collection of source material on the former, distributed in past decades as photocopies, available on the web.

He does not expect to get any gifts directly in exchange. What he does get, in addition to his own enjoyment and the feeling of a useful job done, is status. People sharing his interest recognize his name, treat him as an important person. That too is a gift economy, but of a rather different sort—probably closer to the gift economy of open source software. You pour your gifts out to the world and the world, if you are lucky, repays you in a variety of indirect ways.

That second kind of gift economy is more relevant than the first to one of the interesting issues of the next few decades: How to get intellectual property produced if copyright law becomes, for technological reasons, unenforceable. If I can not prevent you from copying my book, I not only can not charge you for it, I also can not make my giving it to you implicitly conditional on your giving a voluntary gift to me. But I can still get credit for writing it and may be able to find ways of turning the resulting status into other things of value to me.


At 2:23 PM, September 30, 2006, Blogger Tom Grant said...

I guess that is why some of us comment on smarter (hopefully) writers , with the belief that someone may notice their own work. Mine is called the Drycleaning Economist. Although I am more of a Economic Drycleaner, that doesnt roll off the tongue as well.

At 9:06 PM, September 30, 2006, Anonymous Anonymous said...

Concerning the first kind of gift economy:

I recently moved to another city, and two friends helped me with all the hard work needed. Their helping was worth quite a lot to me, but just as you said, they probably would have been offended (and I would have felt kinda stupid) if I had just given them 25 EUR each. So instead I invited them to a nice restaurant. However, one of them is, as far as I know, not that much into fancy food. He appreciates a really nice meal a bit more than his usual ramen noodles (or whatever), but I guess he would not be willing to pay more than five EUR for what cost me 25 EUR.

In some sense, if it were not for whatever it is that keeps us from balancing an account with direct money payments between friends, we'd be much better off. When I receive a well-meant present from a friend for my birthday, I do derive some utility from it. If, however, my friend would have brought cash instead (just as much as he spent on the present), the things I could have bought with it would have given me utility greater than or equal to the utility I derive from the present, leaving warm feelings aside.

Gifts are nice. But they are actually inefficient for reasons similiar to those for the inefficiency of governmental paternalism, in some sense...

At 11:30 PM, September 30, 2006, Anonymous Anonymous said...

Somewhere in the back of my mind, I keep thinking that sometimes it is because we don’t want to balance the account quickly that we take the initiative of giving a gift. Knowing that other people will feel obligated to pay back once we give them a gift, we, perhaps subconsciously, like to keep them indebted. Not settling the account immediately after giving a gift (by not accepting cash)earns us a credit—a friend who will be willing to help us in the future, or not be against us, or be willing to say a good word about us. On the contrary, once you pay me $20 for helping you move, we’re even—no more commitments.

When money is exchanged, there is almost never symbolic value attached to it (unless it’s a particular $1 bill in a nice frame or something like that). It’s quantifiable for me in the same way it is to you. To those who recognize and use it regularly, it represents bargain.
When gifts are exchanged, such as flowers, pottery, jewelry, etc., there is always a symbolic value to them—acknowledgment of love, loyalty, and so on. There is little if any sign of bargain, but an expression of personal commitment.
This, of course, begs a question: Would we act the same way if we had an exclusively barter economy? Does it matter whether gifts are tangible or intangible (such as time spent together in my house, or recognition as talented person)?

Just a thought, and not a theory of any kind.

At 12:30 AM, October 01, 2006, Anonymous Daniel A. Nagy said...

I think, it has to do with the nature of money. Everybody needs money for two purposes: to buy stuff and to pay taxes. Taxes, in a way, are extortion under the threat of violence. This is something we want to keep out of our best relations.
Actually, if Nick Szabo is to be believed, historically, minted money was not meant to be a vehicle of exchange; that was just a fortuitous (and very welcome) side-effect. It was, primarily, a vehicle of taxation. Thus, giving money is not just an exchange but also a humiliation: when we buy something for money in a country with 20% tax, what money says is 4/5 "give me this and you will be able to buy all sorts of useful things" and 1/5 "give me this and my friends won't beat you up".
One observation that seems to support it is that private monies (gift certificates) are less problematic for the purposes of a reciprocal gift than government-mandated legal tender cash.

At 5:41 AM, October 01, 2006, Anonymous edgr said...

Interesting theory. It is true that gift certificates are often a more acceptable gift than money.

@Anonymous (1st post): David posted about this earlier this year.

Also, leaving warm feelings aside is probably not a very valid thing to do, since very much utility is derived from warm feelings.

But that's another puzzle.

At 10:45 AM, October 01, 2006, Anonymous Vadim I. said...

Receiving money buys "homogenous" goods, which may raise utility of recipient by more but gift-givers are selfish and want the credit even if it means lower utility for the recipient R. Secondly, sometimes the utility of a "perfect gift for R" is larger than equivalent monetary amount if the giver also bears information and search costs.

Gifts of service and goods provide unique markers in the memory.

This allows goodwill to be generated over longer periods of time. If I give you $100 and you deposit it in a retirement account of $10,000,000 for 20 years, this money would have noticeable purchasing power in the future but the attribution will be lost. That is, if you buy a vacation home you won't consistently be able to think that this carpet is from my friend X.. or is it this chair, and not the carpet, that I bought with his money?

Even worse, if income effect of having $100 from 10 friends, $1000, is spread over different goods in small increments: a slightly better digital camera, an extra an inch on the TV, a sturdier golf club etc, there won't be much to remember any particular person every time you use those items.

I often insist that relatives make gifts in cash. But I don't remember who gave me what two years ago. Whereas goods sitting on a table, hanging on the wall I can attribute to specific donors very well even if monetary value is not significant.

Heirlooms may work similarly - 'this silver ring was passed down from grandmother to granddaugther for generations.' It seems silly to "pass down" $200 in a savings account for generations (even if the ring is worth less).

Unique services like helping you move in/out or possibly restaurants with engaging discussions may be remembered for years longer, essentially consuming a "heterogenous" good.

Gift certificates force people to spend money now, attaching credit to whatever was bought. This is a compromise - more utility for recipient (asymmetric information about preferences) but weaker attribution in case they buy 10 stacks of paper and toner ink instead of a new gadget.

At 10:45 PM, October 01, 2006, Anonymous Siderea said...

"I also can not make my giving it to you implicitly conditional on your giving a voluntary gift to me."

Well, not for an arbitrary number of freely changable "yous", but in one sense, you can:

"To the Magnificent Lorenzo Di Piero De' Medici: Those who strive to obtain the good graces of a prince are accustomed to come before him with such things as they hold most precious, or in which they see him take most delight; whence one often sees horses, arms, cloth of gold, precious stones, and similar ornaments presented to princes, worthy of their greatness. Desiring therefore to present myself to your Magnificence with some testimony of my devotion towards you, I have not found among my possessions anything which I hold more dear than, or value so much as, the knowledge of the actions of great men, acquired by long experience in contemporary affairs, and a continual study of antiquity; which, having reflected upon it with great and prolonged diligence, I now send, digested into a little volume, to your Magnificence. [...]" -- Niccolo Machiavelli, in his absolutely typical example of a Renaissance dedication, in The Prince.

A creative work which specifically identifies -- and thus glorifies -- a benefactor is precisely such an attempt (potentially successful) to incur a social debt. Musicians have been using that trick for at least centuries, if not millennia, to coax gifts from patrons.

At 11:21 AM, October 02, 2006, Anonymous a.b. said...

to anonymous about gift Vs cash,

A gift may be rationnaly preferable to cash since

- it includes the service of finding the gift.
- it allows the giver to hide the amount of money spent. His gain of utility in not looking "cheap" is reflected in the present where he will put a little more money than he would have given in cash.

At 1:58 PM, October 02, 2006, Anonymous Daniel A. Nagy said...

a. b.'s comment makes a lot of sense. Gifts that are difficult to find (i.e. "special") are definitely preferred over those one can buy at every supermarket.

At 2:19 PM, October 02, 2006, Blogger markm said...

Both kinds of gift economy are basically status-driven. If you receive a gift or a favor that you do not reciprocate, it hurts your pride (that is, lowers your status).

In the second case, status better translates into cash. If a businessman needs help with XYZ, the first choice of consultants is of course the developer(s) of XYZ. If a group wants to hear a speech about XYZ, who else will they offer an honorarium to? There are two potential problems with this system: (1) The time required to cash in might interfere with taking the original project further or with pursuing a new one. I don't expect Linus to ever get free of working on Linux and create something new... (2) The time required to bring a project to a publishable stage, or to get one's worth publicly recognized and find a way to cash in might exceed anyone's capacity for unpaid work.

At 9:20 PM, October 02, 2006, Blogger mark said...


This gift economy conceptis familiar to social and economic historians who study the household economy of American yeomen farmers in the colonial and antebellum periods. "Borrowing and neighboring" or " book debt" was a commonly understood ( and were legally recognized, to an extent) substitute for cash exchanges in those eras.

Stephen Hahn and Allan Kulikoff, I believe, have written on it among others.

At 5:16 AM, October 03, 2006, Blogger Mr. D said...

Can P2P also be described in a wilder mutant version of a gift economy? I'm not sure who I'm sharing stuff with, but I'm sort of gifting it to him. Unfortunately, sometimes, what I'm giving does not (in the eyes of the RIAA) belong to me.

At 9:29 AM, October 04, 2006, Blogger Crosbie Fitch said...

The GPL promotes a freedom agenda. It does not actually oblige a quid pro quo in terms of software modifications.

Its liberating effects may lead people to perceive the purpose of the GPL is to promote reciprocity, but it is not.

It's purpose is to restore and protect the liberty of programmers to published software.

There is a bit of an elephant in the room in the form of an unmentionable schism between those who consider it unfair for people to exploit GPL code without giving anything back to the community in return, and those who understand that it is actually the liberty to use, copy, and modify published software that is being protected.

The GPL has nothing in it that obliges reciprocity, it only enables and protects the freedom of the public.

This is why it is called the 'Free Software Foundation' and not the 'Reciprocal Software Foundation'.

At 2:11 PM, October 04, 2006, Anonymous raphfrk said...

I wonder if the lack of utility in the gift is exactly the point.

By giving something which costs money but which is of low value, you are achieving 2 conflicting aims

a) you are demonstrating that you value the help/friendship by paying out money.

b) you are demonstraing that the relationship is a friendship and not a buisness relationship. The action will not attract false "friends", who are only interested in the money.

If you try to pay directly, you violated b) as you are saying that you aren't really friends.

At 10:05 PM, October 07, 2006, Anonymous BillWallace said...

Just a comment that good music was produced before the best way to make money selling music was to sell records/tapes/CDs.

It stands to reason that if it is no longer possible to make money that way, good music will still be produced.

At 9:59 AM, October 09, 2006, Anonymous eddie said...

Robert Cialdini's "Influence" stresses the reciprocity impulse as a very strong motivator, such that even giving someone something they don't want and didn't ask for creates a powerful feeling in them that they owe you something. This is why insurance salesmen will give you a small and worthless calendar as soon as they shake your hand, for example.

Unlike the economically rational notion of trade, the reciprocity impulse is independent of value: getting a five dollar meal and a five-hundred dollar suit create the same sense of obligation to reciprocate, and what is given back doesn't have to have any relationship to what was given in order to fulfil that sense of obligation. The reciprocity impulse seems to be as simple as "He did something for me, now I have to do something for him."

Cialdini describes numerous ways in which this impulse can be and has been (and still is) used to exploit people. But he suggests that it was essential to the early development of civilization. Without it, there might never have been the trust necessary between parties to exchanges. Cialdini is a psychologist and not an economist or anthropologist, but I can see a good case for the reciprocity impulse being developed hand-in-hand with social groupings and trade.

This is one reason why twenty dollars wouldn't settle the account between you and your dinner buddy. His sense of obligation is to "do something" for you. In particular, it has to be something that you want, not something he wants to do for you. If you offhandedly said "Gosh, I wish I had an extra twenty bucks on me" then he could fulfil his obligation then and there. Otherwise, he has to find something that he knows you want (like dinner) and then offer to give it to you. That's just how the reciprocity impulse works.

At 6:41 PM, October 11, 2006, Anonymous Oleg said...

I wonder how Burning Man model fits into this. At BM people are explicitly forbidden to sell things (except ice and coffee) for money and even bartering is frowned upon.

Yet this little society seems to function pretty well, if only for a week. I gave away a lot of stuff and received tons of stuff - schwag, food, alcohol, entertainment etc - back. There's an obvious huge opportunity for freeriding, yet, it seems, most people choose to share.

It's not like there's reputation at stake. Most people are perfect strangers to each other and it's very easy to get lost in the 40000 crowd. Most times when you meet someone, you never see the person again, unless you specifically arrange a meeting (and even that is not easy)

I've also heard BM being compared to potlach - conspicuous waste of resources in order to show off yourwealth. There's certainly an element of that (hundreds of thousands dollars worth of artworks get happily destroyed each year), but I dont think this is the whole story either.

At 5:47 PM, October 27, 2006, Blogger gt said...

I don't know whether you are familar with the concept of wuffie as explicated in Cory Doctorow's "Down and Out in the Magic Kingdom",, an economic treatise disguised as a rollicking science finction novel. I also found Eric S Raymond's The cathedral and the bazaar helpful on that set of topics.
If this were a longer rant, I would try to link these ideas with your discussion of status.
-arbitrary aardvark

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