DP9737 Giffen?s Good: A case of mistaken identification

Author(s): Liam Brunt
Publication Date: November 2013
Keyword(s): endogeneity, Giffen good, identification, stationarity
JEL(s): B13, B16, D12
Programme Areas: Industrial Organization, Economic History
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=9737

Giffen reported that, in the late nineteenth century, English wheat consumption rose when its price increased ? the first recorded ?Giffen good?. Using Giffen?s data, I explain how he reached his conclusion. I then show that his analysis was faulty: price elasticity of demand appears positive when the demand curve is incorrectly identified, but is significantly negative ? like any normal good ? when it is correctly identified. Since the pathological Giffen good case was actually just mistaken identification, it is no surprise that Giffen goods are impossible to find elsewhere. Popularization of the Giffen good stemmed from Marshall?s and Samuelson?s influential textbooks.