Skip to main content
SpringerLink
Log in

Notes on Some Theories of Giffen Behaviour

  • Chapter
  • First Online:
New Insights into the Theory of Giffen Goods

Part of the book series: Lecture Notes in Economics and Mathematical Systems ((LNE,volume 655))

Abstract

Alfred Marshall’s introduction of the “Giffen paradox” has kept the minds of many economists occupied for more than a century, as has the more general issue of the possibility of an upward sloping segment of the demand curve. In this paper, I will briefly discuss the main historical roots of this literature and investigate a number of explanations of a positively sloping demand curve.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 84.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Notes

  1. 1.

    This point is not mentioned by Hicks and Allen [20], but may be seen as follows. Suppose two goods X and Y with quantities x and y and a suitable utility function u(x, y). The marginal rate of substitution of X for Y (MRS) equals u x  ∕ u y (subscripts denote partial derivatives). Differentiating with respect to y gives (u y u xy  − u x u yy ) ∕ u y 2. Now, with income m, and after some manipulations, differentiation of the first-order conditions of constrained utility maximization gives: ∂x ∕ ∂m = λ(u y u xy  − u x u yy ) ∕ Ω, where λ is the positive marginal utility of money and Ω is the Hessian determinant of u bordered by (0, u x , u y ), which also is positive in the case of convex indifference curves. Hence, sign(∂x ∕ ∂m) = sign(∂MRS ∕ ∂y). Note that under additive utility, u xy  = 0, therefore, sign(∂x ∕ ∂m) = sign( − u yy ) (see below).

  2. 2.

    See also the comments by Lipsey and Rosenbluth [27], Boland [7] and Dougan [12]. Further note that the weak axiom of revealed preference allows for upward sloping demand [6].

  3. 3.

    See footnote 1 for notation; “budget” refers to a consumer’s optimum goods bundle; and “(un)stable” refers to whether the second-order condition is satisfied. See also [1, p. 26].

  4. 4.

    More recent papers related to this point are Liebhafsky [26] and Silberberg and Walker [39].

  5. 5.

    See footnote 1.

  6. 6.

    The example of Wold and Juréen is based on [52]. It is reproduced as an exercise by Katzner [24, p. 62] and more recently discussed by Weber [49]. There are surprisingly few publications with specific utility functions that imply Giffen behaviour, see e.g. Vandermeulen [47], Silberberg and Walker [39], Spiegel [42], Sörensen [41], Doi et al. [13], and Haagsma [18].

  7. 7.

    Since the marginal rate of substitution of X for Y is positive, the indifference curves slope downward. The rate of change of their slope is d 2 y ∕ dx 2 = (2 − y) ∕ 4(x − 1)2 > 0, so the indifference curves also are strictly convex.

  8. 8.

    The slope of the demand for Y is determined by sign(p x  − m), which is negative by the right-hand inequality constraint.

  9. 9.

    For an example of constructing a specific utility function along these lines, see Moffatt [32] or Sörenson [41].

  10. 10.

    See, e.g., Dwyer and Lindsay [14], Kohli [25], Berg [4], McDonough and Eisenhauer [31], and Rosen [37]. Dwyer and Lindsay make the logical point that, instead of increased, aggregate consumption of potatoes must have decreased, since there were fewer potatoes available for the Irish people. In 1845 about one half of the crop was destroyed and in 1846 about 90%. Less clear is what happened with potato prices, though Dwyer and Lindsay argue that prices probably increased.

  11. 11.

    Rosen [37] incorporates these two equations into a larger dynamic model, which he uses to investigate the effects of a transitory and a permanent decline in the productivity of seed potatoes.

  12. 12.

    Although the analysis of Rosen [37] is rather different, he also concludes that the Irish potato must have been a normal good. Somewhat similar conclusions based on an approach with endogenous income are derived by Berg [4] and Nachbar [33].

  13. 13.

    Nachbar assumes that individuals have only preferences over commodities, not over factors endowments.

References

  1. Allen, R.G.D., 1936, Professor Slutsky’s theory of consumers’ choice, Review of Economic Studies 3(2), 120–129.

    Article  Google Scholar 

  2. Barnett, V., 2004, E.E. Slutsky: mathematical statistician, economist, and political economist?, Journal of the History of Economic Thought 26(1), 5–18.

    Google Scholar 

  3. Baruch, S. and Y. Kannai, 2001, Inferior goods, Giffen goods, and Shochu, in: G. Debreu, W. Neuefeind and W. Trockel, Economic essays – A Festschrift for Werner Hildenbrand, Springer, Berlin.

    Google Scholar 

  4. Berg, M., 1987, Giffen’s paradox revisited, Bulletin of Economic Research 39(1), 79–89.

    Article  Google Scholar 

  5. Blaug, 1997, Economic theory in retrospect, 5th edition, Cambridge University Press, Cambridge.

    Google Scholar 

  6. Boland, L.A., 1975, The Law of Demand, weak axiom of revealed preference and price-consumption curves, Australian Economic Papers 14, 104–119.

    Article  Google Scholar 

  7. Boland, L.A., 1977, Giffen goods, market prices and testability, Australian Economic Papers 16, 72–85.

    Article  Google Scholar 

  8. Creedy, J., 1990, Marshall and Edgeworth, Scottish Journal of Political Economy 37(1), 18–39.

    Article  Google Scholar 

  9. Davis, J.E., 1994, Giffen goods, the survival imperative, and the Irish potato culture, Journal of Political Economy 102(3), 547–565.

    Article  Google Scholar 

  10. Dooley, P.C., 1988, Porter’s hint and alternative theories of the Giffen paradox, Australian Economic Papers 27, June,142–144.

    Google Scholar 

  11. Dooley, P.C., 1992, Why did Marshall introduce the Giffen paradox?, History of Political Economy 24(3), 749–752.

    Article  Google Scholar 

  12. Dougan, W.R., 1982, Giffen goods and the Law of Demand, Journal of Political Economy 90(4), 809–815.

    Article  Google Scholar 

  13. Doi, J., K. Isawa, and K. Shimomura, 2009, Giffen behavior independent of wealth level, Economic Theory 41, 247–267.

    Article  Google Scholar 

  14. Dwyer, G.P. and C.M. Lindsay, 1984, Robert Giffen and the Irish potato, American Economic Review 74(1), 188–192.

    Google Scholar 

  15. Friedman, M., 1949, The Marshallian demand curve, Journal of Political Economy 57(6), 463–495.

    Article  Google Scholar 

  16. Garratt, R., 1997, Indivisibilities, inferior goods, and Giffen goods, Canadian Journal of Economics 30(1), 246–251.

    Article  Google Scholar 

  17. Gray, S., 1815, The happiness of states: Or an inquiry concerning population, the modes of subsisting and employing it, and the effects of all on human happiness, London, Hatchard.

    Google Scholar 

  18. Haagsma, R., 2010, A convenient utility function with Giffen behaviour, Unpublished Manuscript, Wageningen University, The Netherlands.

    Google Scholar 

  19. Hicks, J.R., 1939, Value and capital. An inquiry into some fundamental principles of economic theory, 2nd edition, Oxford, Clarendon press.

    Google Scholar 

  20. Hicks, J.R. and R.G.D. Allen, 1934, A reconsideration of the Theory of Value: Part I, Economica 1(1), 52–76.

    Article  Google Scholar 

  21. Hildenbrand, W., 1983, On the “Law of Demand”, Econometrica 51(4), 997–1019.

    Article  Google Scholar 

  22. Hoy, M. and A.J. Robson, 1981, Insurance as a Giffen good, Economics Letters 8, 47–51.

    Article  Google Scholar 

  23. Jensen, R.T. and N.H. Miller, 2008, Giffen behavior and subsistence consumption, American Economic Review 98(4), 1553–1577.

    Article  Google Scholar 

  24. Katzner, D.W., 1970, Static demand theory, Macmillan Company, New York.

    Google Scholar 

  25. Kohli, U., 1986, Robert Giffen and the Irish potato: Note, American Economic Review 76(3), 539–542.

    Google Scholar 

  26. Liebhafsky, H.H., 1969, New thoughts about inferior goods, American Economic Review 59(5), 931–934.

    Google Scholar 

  27. Lipsey, R.G. and G. Rosenbluth, 1971, A contribution to the New Theory of Demand: a rehabilitation of the Giffen good, Canadian Journal of Economics 4(2), 131–163.

    Article  Google Scholar 

  28. Marshall, A., 1895, Principles of Economics. An introductory volume, 3rd edition, Macmillan, London.

    Google Scholar 

  29. Mason, R., 1996, Robert Giffen and the Tariff Reform Campaign, 1865–1910, Journal of European Economic History 25(1), 171–188.

    Google Scholar 

  30. Masuda, E. and P. Newman, 1981, Gray and Giffen goods, Economic Journal 91, 1011–1014.

    Article  Google Scholar 

  31. McDonough, T. and J. Eisenhauer, 1995, Sir Robert Giffen and the Great Potato Famine: A discussion of the role of a legend in neoclassical economics, Journal of Economic Issues 29(3), 747–759.

    Google Scholar 

  32. Moffatt, P.G., 2002, Is Giffen behaviour compatible with the axioms of consumer theory?, Journal of Mathematical Economics 37, 259–267.

    Article  Google Scholar 

  33. Nachbar, J.H., 1998, The last word on Giffen goods?, Economic Theory 11, 403–412.

    Article  Google Scholar 

  34. Ng, Y-K, 1972, Step-optimization, secondary constraints, and Giffen goods, Canadian Journal of Economics 5(4), 553–560.

    Article  Google Scholar 

  35. Pareto, V., 1896, Cours d ’économie politique, Rouge, Lausanne.

    Google Scholar 

  36. Pigou, A.C., ed., 1925, Memorials of Alfred Marshall 1842–1924, Macmillan, London.

    Google Scholar 

  37. Rosen, S., 1999, Potato paradoxes, Journal of Political Economy 107(6), S294-S313.

    Article  Google Scholar 

  38. Samuelson, P.A., 1948, Economics: An introductory analysis, McGraw-Hill, New York.

    Google Scholar 

  39. Silberberg, E. and D.A. Walker, 1984, A modern analysis of Giffen’s paradox, International Economic Review 25(3), 687–694.

    Article  Google Scholar 

  40. Slutsky, E.E., 1956, On the theory of the budget of the consumer, in: G.J. Stigler and K.E. Boulding, Readings in price theory, George Allen & Unwin, London.

    Google Scholar 

  41. Sörensen, P.N., 2007, Simple utility functions with Giffen demand, Economic Theory 31, 367–370.

    Article  Google Scholar 

  42. Spiegel, U., 1994, The case of a “Giffen good”, Journal of Economic Education 25, Spring, 137–147.

    Google Scholar 

  43. Stigler, G.J., 1947, Notes on the history of the Giffen paradox, Journal of Political Economy 55(2), 152–156.

    Article  Google Scholar 

  44. Stigler, G.J., 1948, A reply, Journal of Political Economy 56(1), 61–62.

    Article  Google Scholar 

  45. Stigler, G.J., 1950a, The development of utility theory: I, Journal of Political Economy 58(4), 307–327.

    Article  Google Scholar 

  46. Stigler, G.J., 1950b, The development of utility theory: II, Journal of Political Economy 58(5), 373–396.

    Article  Google Scholar 

  47. Vandermeulen, D.C., 1972, Upward sloping demand curves without the Giffen paradox, American Economic Review 62(3), 453–458.

    Google Scholar 

  48. Van Marrewijk, C. and P.A.G. van Bergeijk, 1990, Giffen goods and the subsistence level, History of Political Economy 22(1), 145–148.

    Article  Google Scholar 

  49. Weber, C.E., 1997, The case of a Giffen good: Comment, Journal of Economic Education 28, Winter, 137–147.

    Google Scholar 

  50. White, M.V., 1990, Invention in the face of necessity: Marshallian rhetoric and the Giffen good(s), Economic Record, March, 1–11.

    Google Scholar 

  51. Wicksell, K., 1934, Lectures on Political Economy, Trans. E. Classen and edited by L. Robbins, London, Routledge.

    Google Scholar 

  52. Wold, H., 1948, On Giffen’s paradox, Nordisk Tiddskrift for Teknisk Ökonomi 12, 283–290.

    Google Scholar 

  53. Wold, H. and L. Juréen, 1953, Demand analysis. A study in econometrics, John Wiley & Sons, New York.

    Google Scholar 

Download references

Acknowledgements

The author thanks the editors of this book and Hans-Peter Weikard for their helpful comments on an earlier draft of the article.

Author information

Authors and Affiliations

  1. Wageningen University, Hollandseweg 1, 8130, 6700 EW, Wageningen, The Netherlands

    Rein Haagsma

Authors
  1. Rein Haagsma
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Rein Haagsma .

Editor information

Editors and Affiliations

  1. , Social Sciences, Wageningen University, Hollandseweg 1, Wageningen, 6706 KN, Netherlands

    Wim Heijman

  2. , Social Sciences, Wageningen University, Hollandseweg 1, Wageningen, 6706 KN, Netherlands

    Pierre von Mouche

Rights and permissions

Reprints and permissions

Copyright information

© 2012 Springer Berlin Heidelberg

About this chapter

Cite this chapter

Haagsma, R. (2012). Notes on Some Theories of Giffen Behaviour. In: Heijman, W., von Mouche, P. (eds) New Insights into the Theory of Giffen Goods. Lecture Notes in Economics and Mathematical Systems, vol 655. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-21777-7_2

Download citation

  • DOI: https://doi.org/10.1007/978-3-642-21777-7_2

  • Published:

  • Publisher Name: Springer, Berlin, Heidelberg

  • Print ISBN: 978-3-642-21776-0

  • Online ISBN: 978-3-642-21777-7

  • eBook Packages: Business and EconomicsEconomics and Finance (R0)

Publish with us

Policies and ethics

Search

Navigation