What would you like your employer to give you as an SG50 bonus?
I started asking this question after news broke last week about the Government giving civil servants a $500 bonus to mark Singapore's 50th year of independence.
My first reaction to the news was one of disappointment. Not because, as a non-civil servant, I wasn't entitled to that $500, but because the gesture seemed to me an easy way out.
Couldn't the Government have been more imaginative as an employer? But a quick poll of friends and colleagues soon set me right. Many people still favour cash over all other gifts.
But to me, a cash handout on the momentous occasion of the country's jubilee year appeared somewhat inappropriate. Ironically, it also speaks volumes of the transactional nature of the relationship between the state and its employees.
Sometimes, a cash gift is welcome; at other times, it's all wrong.
Well-known economist Greg Man-kiw examined this phenomenon in a blog in 2006:
"A man is debating what to give his girlfriend for her birthday. 'I know,' he says to himself, 'I'll give her cash. After all, I don't know her tastes as well as she does, and with cash, she can buy anything she wants.' But when he hands her the money, she is offended. Convinced he doesn't really love her, she breaks off the relationship.
"What's the economics behind this story? 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 pay cheque, 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."
He goes on to cite Michael Spence's theory of gift giving in terms of signalling and asymmetric information.
"The man in our story has private information that the girlfriend would like to know: Does he really love her? Choosing a good gift for her is a signal of his love. Certainly, the act of picking out a gift, rather than giving cash, has the right characteristics to be a signal. It is costly (it takes time), and its cost depends on private information (how much he loves her). If he really loves her, choosing a good gift is easy because he is thinking about her all the time. If he doesn't love her, finding the right gift is more difficult."
In this scenario, giving cash shows a lack of love. It also says: I can't be bothered to find out what you would really like.
Of course, a gift to a girlfriend - an individual one is intimate with - is different from an employer or a state giving multiple gifts to many.
When there are many preferences to account for, it is rational to give something flexible like cash that allows people to spend it on what they want.
Cash substitutes, such as vouchers or gift cards, are also popular. In this respect, the decision to declare Aug 7 this year a public holiday works like a "gift card" in which everyone is given a day off to spend as they wish to celebrate SG50. Such cash substitutes are gifts of choice when shopping for fussy people, a survey suggested.
An interesting poll in 2013 by researchers Andong Cheng, Meg Meloy and Evan Polman that surveyed 7,466 shoppers found that of the shoppers surveyed, 39 per cent of the items they purchased were for individuals they considered "picky".
The researchers "confirmed that shoppers are less motivated, and likely to employ effort-reducing strategies when choosing gifts for people they believe to be picky", according to a report on the website of the Society for Personality and Social Psychology. A top choice for such people is gift cards.
It got me wondering if perhaps the SG50 cash bonus is a response from a gift-giver to "picky" recipients!
Maybe the Government isn't too far wrong. I asked a few colleagues what they would like to see, if our employer were to take up the Government's example and give an SG50 bonus to staff.
The top choice by far was cash.
How about a special-edition gold medallion minted for the occasion? It would keep its value, but have sentimental meaning. One colleague said: "But what if the design is ugly? To celebrate our independence, just give us cash that gives us the independence to spend on what we want."
My other suggestions - an outing with family, a day off - were dismissed. (Family day - why spend it with colleagues? Day off - but what if your operations roster doesn't allow you to take it on a date you want? And it has a regressive effect, since a day off is worth more in money terms to the highly paid than those paid less.)
With different views on what constitutes a desirable SG50 bonus, it's perhaps prudent of the Government to choose a cash bonus.
It is also, from an economic point of view, an extremely efficient choice.
In a famous paper in the American Economic Review in December 1993, economist Joel Waldfogel described how he asked 86 undergraduates in one survey whether they liked their Christmas gifts, and how much they would have paid for them themselves. The students estimated that the gifts cost US$438 (S$585), but they would have been willing to pay US$313 for them.
The difference between what givers paid, and what recipients valued the gifts for, came to be known as the "deadweight loss of Christmas", the title of the paper.
Deadweight loss is an economic term that refers to the loss of efficiency resulting from a payment, when one party pays for something another party values differently.
In the Christmas gifts example, givers are better off giving cash which recipients can then choose to spend on something they value.
By this reckoning, the Government did the smart, economically rational thing in choosing a cash bonus for civil servants to mark SG50.
It suggests that as a society, we will enter our sixth decade with our hard-nosed, economic rationalist DNA intact.
But I couldn't help wondering if there were some civil servants who feel like that girlfriend in Mankiw's story, and are somewhat disappointed that sentiment, and yes, love, didn't enter into the picture more.
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