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CID Working Paper No. 148, July 2007 (Revised December 2007)

Giffen Behavior: Theory and Evidence

Robert T. Jensen and Nolan H. Miller

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.

Keywords: Giffen goods, theory of the consumer, consumption, poverty

JEL codes: D01, I30, O12

Download the paper in PDF format

* See also the 7/16/07 Wall Street Journal article profiling this working paper.

_______________________________________________________________

* Also published as HKS Faculty Research Working Paper No. RWP07-030

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