After a previous short post on why cash is generally the optimum gift and a heated debate with my friend, Daniel, here’s Greg Mankiw with the analysis for the particular case of strong relationships. Here’s an excerpt to get you in the mood:
In some ways, gift giving is a strange custom. As the man in our story suggests, people typically know their own preferences better than others do, so we might expect everyone to prefer cash to in-kind transfers. If your employer substituted merchandise of his choosing for your paycheck, you would likely object to the means of payment. But your reaction is very different when someone who (you hope) loves you does the same thing.
