Giffen Behavior: Theory and Evidence

59 Pages Posted: 6 May 2002

See all articles by Robert T. Jensen

Robert T. Jensen

UCLA School of Public Affairs; National Bureau of Economic Research (NBER)

Nolan H. Miller

University of Illinois at Urbana-Champaign

Multiple version iconThere are 2 versions of this paper

Date Written: July 2007

Abstract

This paper provides the first rigorous, empirical evidence of the existence of Giffen behavior, i.e., a situation in which consumers respond to an increase in the price of a good by demanding more of it. We begin by examining several theoretical approaches to the Giffen phenomenon and show that in each case Giffen behavior is closely associated with poor consumers' need to maintain subsistence consumption in the face of an increase in the price of a staple commodity. We then present evidence on the existence of Giffen behavior among extremely poor households in two provinces of China. In order to obtain an unbiased estimate of the key price elasticity, we conducted a field experiment in which we randomly subsidized households' primary dietary staple (rice in Hunan province and wheat flour in Gansu province). Using consumption data gathered before, during and after the intervention, we find strong evidence of Giffen behavior with respect to rice in Hunan province. We also find evidence for Giffen behavior in Gansu with respect to wheat; however, the evidence is less robust than for Hunan, due to the (unanticipated) failure of at least two of the theoretical conditions that appear necessary for Giffen behavior. Restricting the Gansu sample to households that meet these conditions provides stronger evidence of Giffen behavior.

Keywords: Economics - Microeconomics, International Development

Suggested Citation

Jensen, Robert T. and Miller, Nolan, Giffen Behavior: Theory and Evidence (July 2007). KSG Research Paper No. RWP07-030. Available at SSRN: https://ssrn.com/abstract=310863 or http://dx.doi.org/10.2139/ssrn.310863

Robert T. Jensen (Contact Author)

UCLA School of Public Affairs ( email )

Box 951656
Los Angeles, CA 90095-1656
United States
310-825-9865 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Nolan Miller

University of Illinois at Urbana-Champaign ( email )

1206 South Sixth Street
Champaign, IL 61820
United States
1-217-244-2847 (Phone)

HOME PAGE: http://www.business.illinois.edu/nmiller

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