Tuesday, January 27, 2009

Giffen goods, prostitutes, rice, Levitt and fallacies...

Kudos to our very own VasH (University of Chicago, class of 2013 and soccer player par excellence) for bringing this one to my attention.

It's from Levitt's NYT blog: What Do Prostitutes and Rice Have in Common?:

In an excellent series of guest posts to this blog earlier this year, economist Robert Jensen described his personal quest to prove that rice is a Giffen good for peasants in China.

On The Economist magazine’s Free Exchange blog, the same claim is made about prostitutes:

Less attractive and even cheaper prostitutes may still be available, but for a variety of very good reasons, the customer will not desire the cheapest option, suggesting prostitution services can be classified as a Giffen good.

Are prostitutes Giffen goods? Absolutely not. And understanding why provides a useful economic lesson.
In it there also reference to the Jensen paper that I had mentioned in class on noodles in the North and rice in the South of China. He is referred to as the Indiana Jones of Economics. Read the stuff here and here.

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