Working Paper: NBER ID: w13243
Authors: Robert T. Jensen; 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
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| price increases (E30) | poorest and least poor households decreasing demand (D12) |
| price increases (E30) | households in middle range exhibiting Giffen behavior (D11) |
| conditions not fully met (C62) | weaker evidence of Giffen behavior for wheat in Gansu (D12) |
| lowering the price of rice through subsidies (Q11) | households in Hunan reducing their demand for rice (R22) |