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Giffen Behavior and Subsistence Consumption (2008):
Robert Jensen and Nolan Miller, forthcoming American Economic Review.
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.
Click here to download most recent version. The KSG working paper version contains some additional material. Click here to download it.
There is also an older version of this paper (2002) that examines non-experimental evidence from the China Health and Nutrition Survey. The new paper above supercedes this one, except the cross-province empirical analysis may still be of interest.
Abstract: Economists
have long searched, unsuccessfully, for convincing evidence of a Giffen
behavior, i.e., consumers who, under some circumstances, respond to an
increase in the price of a good by demanding more of it. We examine
several theoretical approaches to the Giffen phenomenon and show that in
each case Giffen behavior is closely associated with consumers reacting
to an increase in the price of a staple by consuming more of that good
in order to maintain subsistence consumption. We then use detailed,
individual-level panel data from China to demonstrate the existence of
two Giffen goods. In particular, in the south, rice, the preferred
dietary staple, is a Giffen good for poor consumers. On the other hand,
in the north, noodles play a larger role in diet than rice, and demand
for noodles is shown to be Giffen.
Click here to download the 2002 version.
Keywords: Giffen Goods; Giffen Behavior; China