This file is created for educational purpose not for sale. Creator of this presentation is highly appreciated the Authors: Robert T. Jensen and Nolan H. Miller Source: The American Economic Review, Vol. 98, No. 4 (Sep., 2008), pp. 1553-1577. Published by: American Economic Association

1. Giffen Behavior and
Subsistence Consumption
Authors: Robert T. Jensen and Nolan H. Miller
Source: The American Economic Review, Vol. 98, No. 4 (Sep., 2008), pp. 1553-1577.
Published by: American Economic Association
Presented By Mr. Warawut Runakham,
National Institute of Development Administration, NIDA
DE 8100 Microeconomics Theory 1

2. Content of
presentation
1. Introduction:
I. Law of Demand
II. The Discussion on giffen behavior
2. Experiment
3. Results
4. Conclusion
5. Q&A
DE 8100 Microeconomics Theory 2

3. Law of Demand
Principle of Microeconomics
• Smith's 1776 publication, the field of economics
developed rapidly, and refinements were to the
supply and demand law.
• Alfred Marshall's 1890 Principles of Economics
developed a supply-and-demand curve that is still
used to demonstrate the point at which the market is
in equilibrium
• Certeris Paribus: as the price of a good increases,
consumers' demand for that good should decrease
DE 8100 Microeconomics Theory 3
Adam Smith, 1723-1790
Alfred Marshall, 1842-1924
Source: Biography.com

4. Robert Giffen
• Alfred Marshall (1895) first publicized this idea in the
1895 edition of his Principles of Economics:
• As Mr. Giffen has pointed out, “a rise in the price of bread
makes so large a drain on the resources of the poorer
laboring families and raises so much the marginal utility of
money to them, that they are forced to curtail their
consumption of meat and the more expensive farinaceous
foods: and, bread being still the cheapest food which they
can get and will take, they consume more, and not less of it”
• In other words, Giffen goods are those inferior goods whose
demand moves in the same direction as the price variation.
This meaning, raising the price of the good will increase its
demand.
DE 8100 Microeconomics Theory 4
Robert Giffen, 1837-1910
Source: Policonomics

5. Discussion of
"Giffen" Behavior
• Since Marshall's time, a discussion of "Giffen"
behavior has found its way into virtually every
basic economics course,
• George J. Stigler (1947) and Roger Koenker
(1977) argue that demand for neither bread nor
wheat was upward sloping in Britain during
Marshall's time.
• The standard textbook example of a Giffen
good, potatoes during the Irish Potato Famine
of 1845-1849 (Paul A. Samuelson 1964),
• discussion of the Giffen phenomenon often
being presented as a paradox of economic
theory rather than as a real (or even possible)
mode of behavior?
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George J. Stigler
Roger Koenker

6. Discussion of
"Giffen" Behavior
• Lawrence A. Boland (1977)
• points out that not only is the theory unable
to rule out Giffen behavior, it is also unable
to explain why it is not observed.
• if the neoclassical model is correct, then
under certain (albeit uncommon) conditions,
Giffen behavior should exist.
• If it has not been yet observed, it is either
because the appropriate conditions have not
been satisfied, the appropriate data have not
been available to measure it, or the theory is
incomplete or flawed
DE 8100 Microeconomics Theory 6
Lawrence A. Boland

7. The Evidence of
the young blood
• Robert T. Jensen and Nolan H. Miller (2008)
• Employed a field experiment exploring the response of poor
households in China to changes in the prices of rice and wheat
• Which will provide the first rigorous, empirical evidence of
real-world Giffen behavior.
DE 8100 Microeconomics Theory 7
Nolan H. MillerRobert T. Jensen

8. Evidence Finding
In an earlier study
• using panel data from the China Health
and Nutrition Survey (Jensen and Miller
2002), poor households in China exhibited
Giffen behavior with respect to their
primary dietary staple (rice in the south;
wheat and/or noodles in the north)
In this study
• Field experiment which provides an
opportunity to study more broadly the
consumption behavior of the "extreme poor”
or “Marshall's "laboring families”
• by focusing on the “extremely poor” and by
introducing exogenous price changes for
staple foods.
DE 8100 Microeconomics Theory 8

9. Scope of study
• Methodology: field experiment, consumption surveys
• Population: 90 million individuals
• Sample: 1,300 randomly selected households (were
given vouchers that subsidized their purchases of their
primary dietary staple for 5 months
• Location: Urban area of
• South: Hunan where rice is the stable good
• North: Gansu where wheat is the stable good
• Duration: before, during, and after the subsidy
• Objectives:
1. Discusses consumption behavior of the poor that
motivates Giffen behavior
2. discusses the field experiment, data, and estimation
strategy
DE 8100 Microeconomics Theory 9

10. Part I. Giffen Behavior and Consumption
among the Poor
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More calories
more
favorable
(taste)
Zone 1: Standard zone
• Consumer trade off between taste and calories (Basic and fancy
food) in ordinary way
Zone 2: Subsistence zone
• caloric intake becomes more important than taste (Basic > fancy)
• This elbow shaped area associated with “Giffen behavior”
• Consumer max taste st. the constraints of basic needs
Zone3: Calorie-deprived zone
• Calorie intake is below the subsistence zone
• Consumer max calories needs
• Iso-calorie curve

11. Part I. Giffen Behavior and Consumption
among the Poor
DE 8100 Microeconomics Theory 11
More calories
more
favorable
(taste)
Zone 1: Standard zone
• Consumer buy less of staple good (bread)
Zone 2: Subsistence zone
• Giffen behavior arise as consumer responds to an increase in the
price of the staple good by substituting toward the cheaper source
of calories, which is still the staple good.
Zone3: Calorie-deprived zone
• Calorie intake is below the subsistence zone
• Consumer max calories needs
• Iso-calorie curve
When price of stable good increases

12. Empirical Strategy
A. The Experiment
DE 8100 Microeconomics Theory 12

13. Empirical Strategy
A. The Experiment
DE 8100 Microeconomics Theory 13

14. Empirical Facts
DE 8100 Microeconomics Theory 14

15. The finding
DE 8100 Microeconomics Theory 15
Exhibit the Giffen behavior Not exhibit the
Giffen behavior
Exhibit the Giffen behavior

16. The finding
important insight into the search for Giffen behavior
and may also help explain why such behavior has
not been previously detected.
1. We should not expect to observe Giffen
behavior at the market level; a subset of
consumers might exhibit Giffen behavior with
respect to a particular commodity while the
overall market exhibits downward sloping
demand. Thus, the search should not be for a
"Giffen good," but for Giffen behavior.
2. The nonlinear response suggests the search is
even more appropriate than just focusing on a
very poorest households.
DE 8100 Microeconomics Theory 16

17. Thank You
DE 8100 Microeconomics Theory 17
• Baruch, Shmuel, and Yakar Kannai. 2001. "Inferior
Goods, Giffen Goods, and Shochu." In Econom?
ics Essays, A Festschrift for Werner Hildenbrand,
ed. Gerard Debreu, Wilhelm Neuefeind, and Walter
Trockel, 9-17. Heidelberg: Springer-Verlag.
• Barzel, Yoram, and Wing Suen. 1992. "The
Demand Curves for Giffen Goods Are Downward
Sloping." The Economic Journal, 102(413): 896-
905.
• Battalio, Raymond C, John H. Kagel, and Carl A.
Kogut. 1991 "Experimental Confirmation of the
Exis? tence of a Giffen Good " American Economic
Review, 81(4) 961-70
• Halbrendt, Catherine, Francis Tuan, Conrado
Gempesaw, and Dimphna Dolk-Etz. 1994 "Rural
Chinese Food Consumption The Case of
Guangdong" American Journal of Agricultural
Economics, 76(4) 794-99.
• Keane, Michael P. 2011. "Labor Suppy Taxes: A
Survey." Journal of Economics Literature 49 (4):
961-1075
• Thomas, Duncan, and John Strauss. 1997 "Health
and Wages Evidence on Men and Women m Urban
Brazil " Journal of Econometrics, 77(1) 159-85This
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