Shipping the Good Apples Out: Alchian-Allen Theorem of Various Qualities

Saito, Tetsuya (2006): Shipping the Good Apples Out: Alchian-Allen Theorem of Various Qualities.

Abstract

This paper explores conditions for which Alchian-Allen theorem–the finer quality product is relatively more purchased than the lower one in regions where additional costs are imposed–holds in models of various but finite qualities. In this paper, “finer qualities raise ratios to lower ones in response to transportation costs” defines the various qualities version of Alchian-Allen theorem. Then we find Alchian-Allen theorem holds if and only if consumptions of neighbor qualities are not so different and weighted averages of compensated elasticities by inverse of prices are decreasing in qualities. In order to provide plausible intuitions, some sufficiency conditions are also suggested.

• Item Type: MPRA Paper
• Institution: Department of Economics, SUNY at Buffalo
• Language: English
• Keywords: Alchian-Allen theorem; various qualities; substitution effect; fixed transportation cost
• Subjects: D - Microeconomics > D0 - General > D00 - General; F - International Economics > F1 - Trade > F19 - Other

References

Alchian, A. A. and W. R. Allen, University Economics, Belmont, CA: Wadsworth, 1967. Bauman, Y., “Shipping the good apples out: a new perspective,” Economic Inquiry, 2004, 42 (3), 534–536.

Bertonazzi, E. P., M. T. Maloney, and R. E. McCormick, “Some evidence on the Alchian and Allen theorem: the third law of demand?,” Economic Inquiry, 1993, 31, 383–393.

Borcherding, T. E. and E. Silberberg, “Shipping the good apples out: the Alchian and Allen theorem reconsidered,” Journal of Political Economy, 1978, 86 (1), 131–138.

Gould, J. P. and J. Segall, “The substitution effects of transportation costs,” Journal of Political Economy, 1969, 77 (1), 130–137.

Hicks, J. R., Value and Capital: an Inquiry into Some Fundamental Principles of Economic Theory, 2nd ed., Oxford, UK: Clarendon press, 1946.

Irwin, D. A. and P. Temin, “The antebellum tariff on cotton textiles revisited,” Journal of Economic History, 2001, 61(3), 777–798.

Pritchett, J. B. and R. M. Chamberlain, “Selection in the market for slaves: New Orleans 1830-1860,” Quarterly Journal of Economics, 1993, 108 (2), 461–473.

Staten, M. and J. Umbeck, “Shipping the good students out: the effect of a fixed charge on student,” Journal of Economic Education, 1989, 20 (2), 165–171.

Temin, P., “Product quality and vertical integration in the early cotton textile industry,” Journal of Economic History, 1988, 48 (4), 891–907.

Umbeck, J., “Shipping the good apples out: some ambiguities in the interpretation of fixed charge,” Journal of Political Economy, 1980, 88 (1), 199–208.