Halloween: An inefficient holiday?

I’ve noticed that a lot of people seem to view Halloween as pointless celebration that is used to help businesses sell candy. Now I don’t think is particularly fair on those who see it as a religious holiday, where this type of celebration can be compared to the way western society celebrates Christmas. However, according to Greg Mankiw, Halloween may be inefficient.

The reason for the inefficiency of Halloween is that people buy a whole lot of candy that the kids don’t actually want. A bunch of money is spent buying candy, but there is no price mechanism to determine what is the efficient bundle of candy for each kid. As there is asymmetric information between the kids and the people buying the candy to hand out to them, there is a market failure.

Another problem people have with these types of holidays is corporate advertising. Corporate advertising can increase the popularity of a holiday if:

1. It increases the benefit of that holiday.
2. It reduces the cost of celebrating
3. It reduces the benefit of not celebrating
4. It increases the cost of not celebrating

If corporate advertising does either of the first two, it will increase consumer surplus (Camp 1). If it does the third or fourth thing it will decrease consumer surplus (Camp 2). The difference between those who love Halloween revelry, and those who see it as a corporate money making scheme is which Camp they sit in.

Finally, another potential problem with any holiday may come from the strategic interaction between people celebrating it. Someones decision to celebrate a holiday can influence your decision to celebrate a holiday by either changing to cost or the benefit of celebrating or not celebrating. If lots of kids turning up at your doorstep for candy increases the cost of not giving them candy (as they start egging your house), then you are stuck celebrating a holiday that you didn’t want to celebrate in order to avoid these higher costs. This situation could well be inefficient. However, if lots of kids turning up increases the benefit of giving away candy, everyone wins from a greater celebration of Halloween.

Who knows whether the net social benefit of Halloween and Christmas is positive. All I wish is that I could dress up as a Goblin and get given free candy.

Update: Seems like economists love this topic 🙂 . I’m pretty sure economics is an addictive good. Once you start thinking that way it becomes harder and harder to think any other way.