Yearly, hundreds of thousands of fogeys propagate the parable of “Santa Claus”: an omniscient, magical man bringing near-infinite toys to kids throughout the globe. Santa Claus employs elves and flying reindeer, lives in an inhospitable atmosphere, and essentially travels 0.5% the velocity of sunshine. Regardless of the apparent dubiousness of those claims, dad and mom spend money on the story regardless, taking kids to see Santa, write letters to Santa, depart cookies at evening, and—maybe most expensive—implementing these beliefs collectively. Why?
Another expression of the query comes from Gary Becker’s mannequin of the altruistic household, whereby members maximize one another’s utility. Mentioned mannequin descriptively approximates relationships between adults, the place a husband could buy sneakers for his spouse if (a) she is just not additionally on the retailer, (b) she would have bought the sneakers had she been there, and (c) the husband has this data. However kids are an odd exception to Becker’s mannequin: their utility is just not maximized as different relations’ are. We all know this as a result of a baby with a mother or father’s earnings would personal each toy or sweet; that this isn’t occurring is proof their utility capabilities aren’t being wholly thought-about in intra-family earnings distributions.
Thus far, dad and mom declare kids don’t know what’s greatest for themselves. Translated to economics, kids don’t internalize the price of their actions. On this sense, kids are akin to drug addicts: their utility capabilities are so near-sighted that they ignore the prices on others and their future selves. So phrased, the query of maximizing kids’s utility turns into one we’re extra acquainted with: how can we allocate to drug addicts, understanding their requests don’t internalize the prices on us and their near-future selves?
Becker comes near addressing this subject together with his “Rotten Child Theorem,” which argues unhealthy actors are nonetheless incented to internalize the prices of their actions as a result of hindering your earnings provide, in flip, hinders your future earnings. In different phrases, rational actors don’t chew the hand that feeds them. However the Rotten Child Theorem doesn’t account for actors with unusually excessive time preferences, reminiscent of precise kids and drug addicts. Assuming dad and mom need to maximize their kids’s current utility operate, how can they allocate sources such that these little drug addicts functionally internalize prices?
For drug addicts, you (the earnings distributor) switch earnings in an quantity negatively regarding monitoring prices. This achieves a sub-par end result for the earnings distributor, the place they want to spend extra, however can not for concern of the addict spending (or buying and selling) for medication. The case for drug addicts appears bleak, however what about kids? What distinction may exist between drug addicts and youngsters that result in, for example, a superstitious fiction for gift-giving within the latter case however not the previous?
Two explanations persist: one preference-based (“it’s cute!”), the opposite what I name “behavior-check” concept: Santa Claus lets dad and mom punish kids, whereas eradicating themselves because the punisher. Dismissing preference-based explanations, the behavior-check concept depends on the “naughty record” Santa supposedly updates continuously; however behavior-check is unconvincing as a result of Santa’s risk isn’t credible. One may argue that kids don’t perceive the shortage of credibility, however as soon as kids’s psychological capability is taken into account, behavior-check makes even much less sense: why would kids, with extremely brief time horizons, care a few punishment they obtain months later?
I argue, alternatively, that folks make the most of kids’s gullibility to allocate what I name “seasonal” items: stuff that may’t be distributed in frequent intervals, like costly electronics or different gadgets that may’t be consumed often (i.e., sweet). Since kids’s incomes are depending on dad and mom’, we must always anticipate rent-seeking conduct. For instance, fixed requests for toys, sweet, and so forth. A rational mother or father faces two selections: give in and buy each merchandise a baby asks for, or allocate provisions beneath what kids would purchase with limitless entry to the household’s earnings.
Given dad and mom need to maximise their kids’s utility, however solely such that prices seem internalized, they face the problem of opportunistic and rent-seeking conduct, the place kids know their dad and mom may presently buy gadgets that might in any other case be rationed seasonally, however don’t have the suitable time horizon to wait. You possibly can say there’s a contractual subject: dad and mom would really like to “contract” with their kids such that some presents are obtained seasonally (costly gadgets that may’t be supplied typically), however kids are susceptible to “breach,” the place they demand gadgets prior to later.
For drug addicts, this contract appears not possible to implement, and thus the answer is usually to cut back distribution (null the contract totally). Kids’s gullibility permits for a extra optimum end result: a mother or father (earnings distributor) could take away themselves as the item of rent-seeking conduct and appoint someone else. Maybe, say, a jolly reindeer-riding saint. This yields some testable predictions, proving Santa Claus to be fairly an efficient reducer of deadweight loss.
Eradicating oneself because the income-distributor could cease the unfavorable results of rent-seeking on oneself particularly, however it doesn’t scale back deadweight loss. If a mother or father appoints an uncle, the youngsters will merely hire search from the uncle, however through Coasean bargaining between household, the mother or father continues to be at a loss. Thus we must always predict the appointed earnings distributor to be a stranger. However appointing an precise stranger nonetheless provides the kid an incentive to rent-seek; their utility operate, if maximized, will see sources then depart the household in direction of the stranger. Thus the deadweight loss is nonetheless affecting the household.
One other prediction, then: the household will appoint a stranger that’s tough to hire search from. But additionally, the mother or father can seize the deadweight loss from kids’s rent-seeking right into a boon if, for no matter, cause, the stranger’s utility is maximized by the kid appearing “good.” In actuality, no stranger has these incentives (except they’re paid to; mall Santa, anyone?). Thus, we must always anticipate that this stranger is fictional, so dad and mom can seize profit from kids’s rent-seeking conduct. Lastly, we must also predict this stranger to be solely appointed when households even have a disposable earnings for gift-giving; with no seasonal presents, we shouldn’t anticipate stated fictional stranger.
Santa Claus, the ever-unreachable stranger commanding kids to be “good,” suits all these predictions. Santa permits dad and mom to take away themselves as the item of rent-seeking conduct, and his location forbids kids from partaking in direct rent-seeking. As an alternative, dad and mom seize the worth of youngsters’s rent-seeking by sustaining that Santa is sueded solely by the relative nicety of the youngsters he distributes earnings to. Santa Claus additionally arose as a prevalent gift-giver after the commercial revolution and early within the 20th century, when households truly had a disposable earnings for youngsters to rent-seek, and “seasonal” items have been allotted in any respect.
This counters the behavior-check concept by arguing that appearing “good” is merely a manner of capturing the worth expended in rent-seeking, not the impetus for Santa Claus itself (which is defined, as I argue, by the need to take away dad and mom from the function of earnings distributor). Furthermore, none of my arguments recommend dad and mom’ rationale for Santa lies outdoors their love for youngsters. Quite the opposite, their love for youngsters is exactly the explanation they hope to maximise their utility within the first place, through Santa Claus.
Sam Branthoover is an economics PhD scholar at Ole Miss.
