Academic journal article Economic Inquiry

In Search of Giffen Behavior: Comment

Academic journal article Economic Inquiry

In Search of Giffen Behavior: Comment

Article excerpt

A recent article by Gilley and Karels |1991~ develops a theory of Giffen behavior. Gilley and Karels consider a consumer in an economy with two goods, meat and potatoes. In addition to meeting a binding budget constraint, the consumer must survive: his caloric intake may not fall below some specified minimum. Gilley and Karels interpret this as a linear constraint, which they assume is binding. They then show that if the consumer has enough income to subsist on potatoes alone, but not enough income to subsist on meat alone, the demand curve for potatoes has an upward-sloping segment. They conclude that potatoes are a Giffen good.

Gilley and Karels's article prompts two comments.

First, if the consumer is subject to a single constraint, as he is in Hicksian utility theory, it is indeed true that an upward-sloping demand curve characterizes a Giffen good. But this is not so if the consumer faces two constraints, as he does in the Gilley-Karels model. Stronger, Goldfarb |1977~ has shown that the presence of two linear constraints can impart an upward-sloping segment to all demand curves, including those for normal goods. Gilley and Karels's conclusion that potatoes are Giffen is thus invalid. (Goldfarb illustrates his point with a rationing constraint rather than a survival constraint, but that obviously does not affect the mathematics of the argument. See also Wichers |1979~.)

Second, Gilley and Karels translate the need for survival into a linear constraint, analogous to the budget constraint. But the analogy is questionable. The budget constraint is imposed by society (as is Goldfarb's rationing constraint), whereas the urge to survive is imposed by nature. …

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