Working Paper: CEPR ID: DP9737
Authors: Liam Brunt
Abstract: Giffen reported that, in the late nineteenth century, English wheat consumption rose when its price increased ? the first recorded ?Giffen good?. Using Giffen?s data, I explain how he reached his conclusion. I then show that his analysis was faulty: price elasticity of demand appears positive when the demand curve is incorrectly identified, but is significantly negative ? like any normal good ? when it is correctly identified. Since the pathological Giffen good case was actually just mistaken identification, it is no surprise that Giffen goods are impossible to find elsewhere. Popularization of the Giffen good stemmed from Marshall?s and Samuelson?s influential textbooks.
Keywords: endogeneity; giffen good; identification; stationarity
JEL Codes: B13; B16; D12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Omitted Variable Bias (C20) | Positive Correlation between Wheat Prices and Consumption (Q11) |
| Nonstationarity (C22) | Positive Correlation between Wheat Prices and Consumption (Q11) |
| Wheat Prices (Q11) | Demand Curve Misidentification (D43) |
| Demand Curve Misidentification (D43) | Giffen Good Identification Flaw (D11) |
| Giffen's Flawed Analysis (D43) | Misinterpretation of Data (Y10) |
| Proper Analysis (C38) | Negative Price Elasticity of Demand for Wheat (Q11) |
| Wheat Prices (Q11) | Wheat Consumption (D10) |