Why does Sinterklaas exist?

Every year, millions of parents promote the myth of ‘Santa Claus’: an omniscient, magical man who brings almost infinite toys to children around the world. Santa Claus employs elves and flying reindeer, lives in an inhospitable environment and necessarily travels 0.5% of the speed of light. Despite the obvious dubiousness of these claims, parents invest in the story anyway, taking children to see Santa, writing letters to Santa, leaving them cookies at night, and—perhaps most costly of all—coercing they collectively reject these beliefs. Why?

An alternative expression of this question comes from Gary Becker’s model of the altruistic family, in which members maximize each other’s utility. This model descriptively approaches adult relationships, where a man can buy shoes for his wife if (a) she is not also in the store, (b) she would have bought the shoes if she had been there, and (c ) the man has this knowledge. But children are a strange exception to Becker’s model: their utility is not maximized like that of other family members. We know this because a child with one parent’s income would own all the toys and candy; that this does not happen is evidence that their utility functions are not fully taken into account in the distribution of income within the family.

Until now, parents claim that children do not know what is best for themselves. Translated into economics, children do not internalize the costs of their actions. In this sense, children are like drug addicts: their utility functions are so myopic that they ignore the costs to others and their future selves. Formulated this way, the question of maximizing children’s utility becomes an issue we are more familiar with: How do we distribute drug addicts, knowing that their requests do not internalize the costs to us and their future selves?

Becker comes close to addressing this problem with his “Rotten Kid Theorem,” which argues that bad actors still tend to internalize the costs of their actions, because hindering your income supply in turn hinders your future income. In other words: rational actors do not bite the hand that feeds them. But the Rotten Kid Theorem doesn’t take into account actors with unusually high time preferences, such as factual children and drug addicts. Assuming that parents want to maximize their children’s current utility function, how can they allocate resources in such a way that these little drug addicts functionally internalize the costs?

For drug addicts, you (the income distributor) transfer income in an amount negatively related to the costs of control. This produces a substandard result for the income sharer, who wants to spend more but cannot for fear of the addict who will spend (or trade) money for drugs. The case for drug addicts seems bleak, but what about children? What difference could there be between drug addicts and children that would, for example, lead to a superstitious fiction about gift-giving in the latter case, but not in the former?

Two explanations remain: one based on preferences (“it’s cute!”), the other on what I call the “behavioral control” theory: Santa lets parents punish children, while removing himself as the punisher. Behavioral control theory ignores preference-based explanations and relies on the “naughty list” that Santa Claus supposedly constantly updates; but behavioral control is unconvincing because Santa’s threat is never credible. You could argue that children don’t understand the lack of credibility, but once children’s mental capabilities are taken into account, behavioral control makes even less sense: why would children, with an incredibly short time horizon, worry about a punishment that could last them get it later?

Alternatively, I argue that parents use children’s gullibility to allocate what I call “seasonal” goods: items that cannot be distributed at regular intervals, such as expensive electronics or other items that cannot be consumed frequently (e.g., candy). Because children’s income depends on that of their parents, we should expect rent-seeking behavior. For example, constant requests for toys, candy, etc. A rational parent has two choices: give in and buy everything a child asks for, or allocate provisions below what children would buy with unlimited access to the family income.

Given parents want to To maximize their children’s utility, but only in such a way that costs appear internalized, they face the problem of opportunistic and profit-seeking behavior, where children know their parents could are currently purchasing items that would otherwise be rationed seasonally, but for which the appropriate time horizon does not exist to wait. You could say that there is a contractual problem: parents would like that to make a ‘contract’ with their children so that some gifts are received seasonally (expensive items that cannot be provided often), but children are prone to ‘violation’, demanding something sooner or later.

For drug addicts, this contract seems impossible to enforce, so the solution is often to reduce distribution (destroy the contract completely). Children’s gullibility creates a more optimal outcome: a parent (income distributor) can remove themselves as an object of rent-seeking behavior and appoint someone else. Maybe a cheerful reindeer-riding saint, for example. This produces a number of testable predictions, showing that Santa Claus is quite an effective means of reducing weight loss.

Removing yourself as the income distributor may counteract the negative effects of rent-seeking on yourself specifically, but it does not reduce deadweight loss. If a parent appoints an uncle, the children will simply seek rent from the uncle, but through Coasean negotiations between the family, the parent is still at a loss. So we have to predict that the designated income distributor is a foreigner. But naming one factual the stranger still encourages the child to seek rent; their utility function, if maximized, will then see resources to leave the family versus the stranger. So the deadweight loss is still that affect the family.

So another prediction: the family will appoint a stranger from whom it will be difficult to rent. But parents can also turn the loss of costs resulting from their children’s rent-seeking into a blessing asFor whatever reason, the stranger’s utility is maximized by the child acting “right.” In reality, no stranger has these incentives (unless they are paid to; mall Santa, anyone?). So we can expect this stranger to be that fictionalso that parents can benefit from children’s rent-seeking behavior. Finally, we must also predict that this stranger will only be appointed to families actually have disposable income for gift giving; without seasonal gifts we should not expect the fictional stranger.

Santa Claus, the always unreachable stranger who tells children to be “nice,” fulfills all these predictions. Santa allows parents to remove themselves as objects of rent-seeking behavior, and his location prohibits children from directly rent-seeking. Instead, parents exploit the value of their children’s rent-seeking by claiming that Santa is only charmed by the relative niceness of the children to whom he hands out income. Santa Claus also emerged as a major gift giver after the Industrial Revolution and the early 1920se century, when families actually had disposable income for children to rent, and ‘seasonal’ goods were allocated at all.

This refutes behavioral control theory by stating that “playing nice” is merely a way of capturing the value spent on rent-seeking, and not the impetus for Santa himself (which, as I argue, is explained due to the need to remove parents from the role of income distributor). Furthermore, none of my arguments suggest that parents’ reasoning for Santa lies outside their love for children. Rather, their love for children is precisely the reason they hope to maximize their utility in the first place, through Santa Claus.