Giffen behavior independent of the wealth level |
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Authors: | Junko Doi Kazumichi Iwasa and Koji Shimomura |
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Institution: | (1) Faculty of Economics, Kansai University, 3-3-35 Yamate-cho, Suita, Osaka, Japan;(2) Graduate School of Economics, Kobe University, 2-1 Rokkodai-cho, Nada-ku, Kobe, Japan;(3) Research Institute for Economics and Business Administration, Kobe University, 2-1 Rokkodai-cho, Nada-ku, Kobe, Japan |
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Abstract: | We demonstrate that a well-behaved utility function can generate Giffen behavior, where “well-behaved” means that its indifference
curves are smooth, convex, and closed in a commodity space; the resulting demand function of each good is differentiable with
respect to prices and income. Moreover, we show that Giffen behavior is compatible with any level of utility and an arbitrarily
low share of income spent on the inferior good. This contrasts sharply with the common view that the Giffen paradox tends
to occur when households’ wealth levels are low.
Comments from Murray C. Kemp, Binh Tran-Nam, Ngo Van Long, Masao Oda, Noritsugu Nakanishi, and Chiaki Hara have greatly improved
the paper. We have also benefited from discussions with Koichi Hamada, Satya Das, Takashi Kamihigashi, Tomoyuki Kamo, Toru
Kikuchi, Katsufumi Fukuda, Yu-chin Chen, Fahad Khalil, Takeshi Nakatani, Kazuo Nishimura, Ken-Ichi Shimomura, and Stephen
J. Turnovsky. We thank the anonymous referee for his/her helpful comments. Iwasa would like to acknowledge financial support
from Research Fellowships of the Japan Society for the Promotion of Science for Young Scientists. Professor Koji Shimomura
passed away on February 24, 2007. This paper was completed after his untimely death. |
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Keywords: | Giffen behavior Utility function Standard of living Expenditure share |
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