Giffen Behavior and Subsistence Consumption Robert Jensen and Nolan Miller español

American Economic Association

Giffen Behavior and Subsistence Consumption
Author(s): Robert T. Jensen and Nolan H. Miller
Reviewed work(s):
Source: The American Economic Review, Vol. 98, No. 4 (Sep., 2008), pp. 1553-1577
Published by: American Economic Association
Stable URL: http://www.jstor.org/stable/29730133 .
Accessed: 28/01/2012 12:36
Your use of the JSTOR archive indicates youracceptance of the Terms & Conditions of Use, available at .
http://www.jstor.org/page/info/about/policies/terms.jsp
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of
content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms
of scholarship. For moreinformation about JSTOR, please contact support@jstor.org.

American Economic Association is collaborating with JSTOR to digitize, preserve and extend access to The
American Economic Review.

http://www.jstor.org

American Economic
http://www aeaweb

Review 2008, 98 4, 1553-1577
1257/aer98

org/articles php?doi=10

4 1553

Giffen Behavior and Subsistence
By Robert

T. Jensenand Nolan

Consumption
H. Miller*

This paper provides thefirst real-world evidence of Giffen behavior, i.e.,
upward sloping demand. Subsidizing theprices of dietary staples for extremely
poor households in twoprovinces of China, we find strong evidence of Giffen
behavior for rice in
Hunan, and weaker evidence for wheat inGansu. The data
provide new insight into the consumption behavior ofthe poor, who act as
thoughmaximizing utility subject to subsistence concerns. We find that their
elasticity of demand depends significantly, and nonlinearly, on the severity of
theirpoverty. Understanding this heterogeneity is importantfor the effective
design of welfare programs for thepoor. (JEL D12, 012)
"
The "Law ofDemand
which holds thatas theprice of a good increases, consumers'demand
for thatgood should decrease, is one of the bedrock principles ofmicroeconomics. Economists
have long recognized, however, that the axioms of consumer theorydo not guarantee thatdemand
curves must slope downward, and that the Law of Demand, while descriptively valid inmany
situations,may not apply to very poor consumers facing subsistence concerns. Alfred Marshall
firstpublicized thisidea in the 1895 edition of his Principles ofEconomics:
As Mr. Giffen has pointed out, a rise in the price of bread makes so large a drain on
the resources of the poorer labouring families and raises so much themarginal utility of
money to them, that they are forced to curtail their consumption of meat and themore
expensive farinaceous foods: and, bread being still the cheapest food which theycan get
and will take, they consume more, and not less of it (208).
Since Marshall's time, a discussion of "Giffen" behavior has found its
way into virtually every
a lack of real-world evidence supportingMarshall's conjec?
basic economics course, despite
ture.1 Studies by George J. Stigler (1947) and Roger Koenker (1977) argue that demand for
time. The standard
neither bread nor wheat wasupward sloping in Britain during Marshall's
a Giffen good, potatoes during the Irish Potato Famine of 1845-1849 (Paul
textbook example of
A. Samuelson 1964), has also been discredited (Sherwin Rosen 1999). Not only are thereno data
to support the claim, but at a more basic level it is unlikely that consumption of potatoes could

* Jensen Watson
Institute for International Studies, BrownUniversity, 111 Thayer St, Providence, RI 02912,
John F Kennedy School of
and National Bureau of Economic Research
edu), Miller
(e-mail robert_jensen@brown
We thank
Government, Harvard University, 79 JFK St, Cambridge, MA 02138 (e-mail nolan_miller@harvard.edu)
Alberto Abadie, Chris Avery, Sebastian Bauhoff, Amitabh Chandra, Suzanne Cooper, Daniel Hojman, Brian Jacob,
and
Elizabeth Lacey,...