FOCUSING THE SEARCH FOR GIFFEN BEHAVIOR

A recent paper by Otis Gilley and Gordon Karels showed that Giffen behavior can result from a rationing constraint which provides a second, lower bound to consumption. This model provides afar wider set of possibilities for uncovering Giffen behavior empirically than simply among the poor with limited consumption choices among a few staple items. Giffen behavior of this type can equally well result from the interaction of two binding upper constraints to the consumer's choice set. This is demonstrated with a consumer who experiences local satiation, the antithesis of the usual setting where Giffen goods are thought possible.