Wednesday, July 11, 2007

Giffen good discovered?

This paper provides the first rigorous, empirical evidence of the existence of Giffen behavior, i.e., a situation in which consumers respond to an increase in the price of a good by demanding more of it... We then present evidence on the existence of Giffen behavior among extremely poor households in two provinces of China. In order to obtain an unbiased estimate of the key price elasticity, we conducted a field experiment in which we randomly subsidized households' primary dietary staple (rice in Hunan province and wheat flour in Gansu province). Using consumption data gathered before, during and after the intervention, we find strong evidence of Giffen behavior with respect to rice in Hunan province.
--Robert Jensen and Nolan Miller, "Giffen Behavior: Theory and Evidence," on finding the elusive Giffen good

1 comment:

Sophist said...

People respond to an increase in price of a good by demanding more of it sounds like the iPhone.