Giffen behaviour in Irish famine markets: textbooks giving a wrong example??

A really interesting paper. Normal goods are those whose demand declines when price rises. GIffen goods are those goods whose demand rises when price rises. Econ textbooks usually cite potato in Irish famine as an example of Giffen good.  Interestingly, not many examples have come  from historical examples so far.

This paper shows potato is not really the right example for Giffen good. It is Pork actually:

There has been much contention among economists as to whether the potato in Irish markets during the Famine period is an example of a ‘Giffen’ good, but no price and quantity data from Ireland’s famine period has previously been unearthed to enable this to be systematically tested. Analysing high frequency price and quantity data for potatoes, wheat, barley, oats, and bacon pigs, collected from Cork market reports between 1842-49, this paper presents initial results which indicate that whilst potatoes, wheat, barley, and oats display normal characteristics during this period, the Cork markets for bacon pigs display some characteristics associated with Giffen-style behaviour. Further econometric analysis of the famine bacon pig market may therefore shed light upon the ‘Giffen’ phenomenon as well as market behaviour during famines.

Fascinating. How did this reporting of Giffen goods in textbooks started:

When Alfred Marshall first outlined the Law of Demand in the 1895 edition of Principles of Economics, he was forced to cite one exception: Giffen goods. These were defined as a type of inferior good, larger quantities of which are consumed when prices rise, resulting in a demand curve with a positive gradient on a quantity price graph. Marshall ascribed this idea to Sir Robert Giffen, a Scottish statistician and economist, saying he first made the following  observation about bread:

As Mr. Giffen has pointed out, a rise in the price of bread makes so large a drain on the resources of the poorer labouring families and raises so much the marginal utility of money to them, that they are forced to curtail their consumption of meat and the more expensive farinaceous foods: and, bread being still the cheapest food which they can get and will take, they consume more, and not less of it.

The ‘Giffen’ effect Marshall described has since been modelled in the Slutsky equation by economists as a situation where an income effect, due to a price rise, outweighs the impact of a substitution effect upon the quantity demanded of the good. Despite a lack of empirical evidence in support of Marshall’s conjecture, a discussion of Giffen goods as an accepted phenomenon has featured in almost every major economics textbook published in the last fifty years and still remains ‘a source of inspiration’ to theoretical researchers in the twentyfirst century, according to Wim Heijman and Pierre von Mouche.

Some economists, including John Nachbar, have attempted to discredit the theory behind the existence of Giffen goods.This has been supported by studies of Marshall’s original example by George Stigler in 1947 and Roger Koenker in 1977, which have argued that the demand curves for bread and flour in Britain were never upward sloping in the eighteenth and nineteenth centuries.

Since the 1960s, instead of bread, some economists began to cite the potato during the Irish famine of 1845-49 as the classic example of a Giffen good. The first citation was in Paul Samuelson’s Economics, albeit in a rather cavalier way, possibly confusing Sir Robert Giffen with Sir Francis Drake, who, in legend, brought the first potatoes to Britain in the sixteenth century.

Interesting stuff..


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