Prevention as a Giffen Good in a Two-Period Framework

Abstract This paper complements previous studies of the conditions under which prevention may be a Giffen good in a one-period model by examining the same issue in a two-period framework. We consider two settings: one in which prevention is chosen in isolation and another in which it is chosen jointly with saving. We show that prevention can never be a Giffen good in the prevention-only model, whereas it can be either a normal or a Giffen good in the joint prevention-saving model. In this second setting, a necessary condition for prevention to be a Giffen good is derived and compared with the corresponding condition in the one-period framework. While the necessary condition requires implausible parameter values in the one-period framework, this is not the case in the two-period framework with saving. Unlike in the one-period framework, we thus cannot exclude that prevention is a Giffen good.