Thursday, May 8, 2008

Giffen Goods again!

Rob Jensen and Nolan Miller of the Center for International Development at the JFK School of Government at Harvard are about to publush a finalized version of their 2002 paper on the elusive Giffen good we learned in Micro. They had found that higher rice / noodles prices led to higher consumption of rice / noodles BUT, what if the higher consumption of rice (i.e. higher demand for rice) led to higher rice prices? This is the so-called identification problem in Economics (Econometrics) and to solve it they decided to do a field test! They carecully designed a field experiment giving a random sample of Chinese farmers small (voucher) subsidies and observed that their consumption of rice decreased (to presumably eat more protein) while when the subsidy was removed (and the price faced rose) consumption increased!

Read this at the Wall Street Journal
this at the Rodrik blog
this at another blog
and this from the JFK paper site and here the paper itself (read the first few papes and look at the rest!).


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