Yearly, hundreds of thousands of oldsters propagate the parable of “Santa Claus”: an omniscient, magical man bringing near-infinite toys to youngsters throughout the globe. Santa Claus employs elves and flying reindeer, lives in an inhospitable setting, and essentially travels 0.5% the pace of sunshine. Regardless of the apparent dubiousness of those claims, dad and mom put money into the story regardless, taking youngsters to see Santa, write letters to Santa, depart cookies at night time, 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. Stated mannequin descriptively approximates relationships between adults, the place a husband could buy sneakers for his spouse if (a) she shouldn’t be additionally on the retailer, (b) she would have bought the sneakers had she been there, and (c) the husband has this data. However youngsters are an odd exception to Becker’s mannequin: their utility shouldn’t be maximized as different relations’ are. We all know this as a result of a toddler with a mother or father’s earnings would personal each toy or sweet; that this isn’t taking place is proof their utility capabilities aren’t being wholly thought of in intra-family earnings distributions.
Thus far, dad and mom declare youngsters don’t know what’s greatest for themselves. Translated to economics, youngsters don’t internalize the price of their actions. On this sense, youngsters 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 youngsters’s utility turns into one we’re extra aware of: how will we allocate to drug addicts, figuring out their requests don’t internalize the prices on us and their near-future selves?
Becker comes near addressing this challenge along with his “Rotten Child Theorem,” which argues dangerous 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 youngsters and drug addicts. Assuming dad and mom wish to maximize their youngsters’s current utility perform, how can they allocate assets such that these little drug addicts functionally internalize prices?
For drug addicts, you (the earnings distributor) switch earnings in an quantity negatively referring to monitoring prices. This achieves a sub-par final result for the earnings distributor, the place they want to spend extra, however can’t for worry of the addict spending (or buying and selling) for medicine. The case for drug addicts appears bleak, however what about youngsters? What distinction might 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” idea: Santa Claus lets dad and mom punish youngsters, whereas eradicating themselves because the punisher. Dismissing preference-based explanations, the behavior-check idea depends on the “naughty listing” Santa supposedly updates always; however behavior-check is unconvincing as a result of Santa’s risk is rarely credible. One might argue that youngsters don’t perceive the shortage of credibility, however as soon as youngsters’s psychological capability is taken into account, behavior-check makes even much less sense: why would youngsters, with extremely quick time horizons, care a few punishment they obtain months later?
I argue, alternatively, that oldsters make the most of youngsters’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 steadily (i.e., sweet). Since youngsters’s incomes are depending on dad and mom’, we must always count on rent-seeking conduct. For instance, fixed requests for toys, sweet, and many others. A rational mother or father faces two selections: give in and buy each merchandise a toddler asks for, or allocate provisions beneath what youngsters would purchase with limitless entry to the household’s earnings.
Given dad and mom need to maximise their youngsters’s utility, however solely such that prices seem internalized, they face the difficulty of opportunistic and rent-seeking conduct, the place youngsters know their dad and mom might presently buy gadgets that may in any other case be rationed seasonally, however don’t have the suitable time horizon to wait. You can say there’s a contractual challenge: dad and mom would really like to “contract” with their youngsters such that some presents are acquired seasonally (costly gadgets that may’t be offered typically), however youngsters are liable to “breach,” the place they demand gadgets before later.
For drug addicts, this contract appears not possible to implement, and thus the answer is usually to scale back distribution (null the contract solely). Kids’s gullibility permits for a extra optimum final result: a mother or father (earnings distributor) could take away themselves as the article of rent-seeking conduct and appoint any individual 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 adverse results of rent-seeking on oneself particularly, however it doesn’t cut back deadweight loss. If a mother or father appoints an uncle, the youngsters will merely hire search from the uncle, however by way of 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 perform, if maximized, will see assets 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 troublesome to hire search from. But additionally, the mother or father can seize the deadweight loss from youngsters’s rent-seeking right into a boon if, for no matter, cause, the stranger’s utility is maximized by the kid performing “good.” In actuality, no stranger has these incentives (except they’re paid to; mall Santa, anyone?). Thus, we must always count on that this stranger is fictional, so dad and mom can seize profit from youngsters’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 count on stated fictional stranger.
Santa Claus, the ever-unreachable stranger commanding youngsters to be “good,” matches all these predictions. Santa permits dad and mom to take away themselves as the article of rent-seeking conduct, and his location forbids youngsters from participating in direct rent-seeking. As a substitute, dad and mom seize the worth of kids’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 really had a disposable earnings for youngsters to rent-seek, and “seasonal” items have been allotted in any respect.
This counters the behavior-check idea by arguing that performing “good” is merely a approach 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 exterior their love for youngsters. Quite the opposite, their love for youngsters is exactly the rationale they hope to maximise their utility within the first place, by way of Santa Claus.
Sam Branthoover is an economics PhD scholar at Ole Miss.
