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American Economic Review: Vol. 98 No. 4 (September 2008)

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Giffen Behavior and Subsistence Consumption

Article Citation

Jensen, Robert T., and Nolan H. Miller. 2008. "Giffen Behavior and Subsistence Consumption." American Economic Review, 98(4): 1553-77.

DOI: 10.1257/aer.98.4.1553

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. We find that their elasticity of demand depends significantly, and nonlinearly, on the severity of their poverty. Understanding this heterogeneity is important for the effective design of welfare programs for the poor. (JEL D12, O12)

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Authors

Jensen, Robert T. (Watson Institute for International Studies, Brown U)
Miller, Nolan H. (Harvard U)

JEL Classifications

D12: Consumer Economics: Empirical Analysis
O12: Microeconomic Analyses of Economic Development


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