Are There Giffen Inputs?

Question

I am studying for my candidacy exams and I came across this question on a previous exam. The question is in the TFD (True, False, Debatable) section of the exam. The claim is: "There are no Giffen inputs in production." I think this question is a very fascinating one, and should spark some interesting discussion. My intuition tells me that this is false because if there are Giffen goods on the consumer side then surely there are Giffen goods on the producer side. However, I cannot think of a concrete counterexample to the claim. In consumer theory, they claim that Giffen goods occur when the good is so important to the consumer that when the price increases, they decide to just buy that good and not buy any other goods. For example, economists believe that one of the only real life Giffen good situations is potatoes in the Irish potato famine. They claimed that potatoes were such a staple in the Irish diet that when the prices rose, the Irish people decided not to buy other foods (such as meat) and dedicated all of their food budget to potatoes. Are there any situations where we might see a firm/industry act in a similar way? What do you guys think? Are there any Giffen inputs in production?

Answer 1

The Irish potatoe famine is probably anecdotal. With the blight, there were actaully fewer potatoes to eat. The demand was inelastic as potatoes are an inferior good. THE BUDGET SHARES DEVOED TO POTAOES MOST ASSUREDLY ROSE BUT IT IS NOT CLEAR THAT MORE POTATOES WERE ACTUALLY CONSUMED. With a giffen good, substitution and income effects move in opposite directions and the income effect dominates.

With inputs. To have an inferior input, If we wanted to doublble output we would actually REDUCE the use of that input. This is at odds with constant returns to scale