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Giffen Behavior: Theory and Evidence

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  • Robert T. Jensen
  • Nolan H. Miller
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    Abstract

    This paper provides the first real-world evidence of Giffen behavior, i.e., upward sloping demand. Subsidizing the prices of dietary staples for extremely poor households in two provinces of China, we find strong evidence of Giffen behavior for rice in Hunan, and weaker evidence for wheat in Gansu. The data provide new insight into the consumption behavior of the poor, who act as though maximizing utility subject to subsistence concerns, with both demand and calorie elasticities depending significantly, and non-linearly, on the severity of their poverty. Understanding this heterogeneity is important for the effective design of welfare programs for the poor.

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    File URL: http://www.nber.org/papers/w13243.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13243.

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    Date of creation: Jul 2007
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    Publication status: published as Robert T. Jensen & Nolan H. Miller, 2008. "Giffen Behavior and Subsistence Consumption," American Economic Review, American Economic Association, vol. 98(4), pages 1553-77, September.
    Handle: RePEc:nbr:nberwo:13243

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    1. Dougan, William R, 1982. "Giffen Goods and the Law of Demand," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 809-15, August.
    2. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
    3. Koenker, Roger, 1977. "Was Bread Giffen? The Demand for Food in England Circa 1790," The Review of Economics and Statistics, MIT Press, vol. 59(2), pages 225-29, May.
    4. Richard G. Lipsey & Gideon Rosenbluth, 1971. "A Contribution to the New Theory of Demand: A Rehabilitation of the Giffen Good," Canadian Journal of Economics, Canadian Economics Association, vol. 4(2), pages 131-63, May.
    5. Sherwin Rosen, 1997. "Potato Paradoxes," University of Chicago - George G. Stigler Center for Study of Economy and State 135, Chicago - Center for Study of Economy and State.
    6. Gilley, Otis W & Karels, Gordon V, 1991. "In Search of Giffen Behavior," Economic Inquiry, Western Economic Association International, vol. 29(1), pages 182-89, January.
    7. Battalio, Raymond C & Kagel, John H & Kogut, Carl A, 1991. "Experimental Confirmation of the Existence of a Giffen Good," American Economic Review, American Economic Association, vol. 81(4), pages 961-70, September.
    8. Thomas, D. & Strauss, J., 1997. "Health and Wages: Evidence on Men and Women in Urban Brazil," Papers 97-05, RAND - Reprint Series.
    9. Boland, L A, 1977. "Giffen Goods, Market Prices and Testability," Australian Economic Papers, Wiley Blackwell, vol. 16(28), pages 72-85, June.
    10. George J. Stigler, 1947. "Notes on the History of the Giffen Paradox," Journal of Political Economy, University of Chicago Press, vol. 55, pages 152.
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    Cited by:
    1. Jensen, Robert T. & Miller, Nolan, 2008. "The Impact of the World Food Price Crisis on Nutrition in China," Working Paper Series rwp08-039, Harvard University, John F. Kennedy School of Government.
    2. Matthew A. Hanson, 2007. "The Economics of Roadside Bombs," Working Papers 68, Department of Economics, College of William and Mary.

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