Giffen behaviour and strong asymmetric gross substitutability

Abstract

Let a consumer consume two goods, and let good 1 be a Giffen good. Then a well-known necessary condition for such behaviour is that good 1 is an inferior good. This paper shows that an additional necessary condition for such behaviour is that good 1 is a gross substitute for good 2, and that good 2 is a gross complement to good 1 (strong asymmetric gross substitutability). It is argued that identifying strong asymmetric gross substitutability as an additional necessary condition gives better insight into Giffen behaviour, both on an analytical level and an intuitive level. © Springer-Verlag Berlin Heidelberg 2012.