An Expository Note on Alchian-Allen Theorem When Sub-Utility Functions are Homogeneous of Degree n ą 0

Saito, Tetsuya (2007): An Expository Note on Alchian-Allen Theorem When Sub-Utility Functions are Homogeneous of Degree n ą 0.

Abstract

This expository note shows Alchian and Allen’s conjecture–consumers purchase fine quality relatively more than coarse one– is true under some specific conditions about homogeneity, inner solution and substitutability while allowing the influence of the income effect. In the proof, to be an exposition, I emphasize graphical representations of Alchian-Allen Theorem than algebra.

• Item Type: MPRA Paper
• English Title: Shipping the Good Apples Out: Another Proof with A Graphical Representation
• Language: English
• Keywords: Fixed transaction cost; quality of goods; Alchian-Allen Theorem; change in consumption pattern
• Subjects: F - International Economics > F1 - Trade > F10 - General; D - Microeconomics > D0 - General > D01 - Microeconomic Behavior: Underlying Principles

References

Alchian, A. A., and W. R. Allen (1967) University Economics (Belmont, CA: Wadsworth). Bauman, Y. (2004) ‘Shipping the good apples out: a new perspective.’ Economic Inquiry 42(3), 534–536. Borcherding, T. E., and E. Silberberg (1978) ‘Shipping the good apples out: the alchian and allen theorem reconsidered.’ Journal of Political Economy 86(1), 131–138. Gould, J. P., and J. Segall (1969) ‘The substitution effects of transportation costs.’ Journal of Political Economy 77(1), 130–137. Hicks, J. R. (1946) Value and Capital: an Inquiry into Some Fundamental Principles of Economic Theory, 2nd ed. (Oxford, UK: Clarendon press). Umbeck, J. (1980) ‘Shipping the good apples out: some ambiguities in the interpretation of fixed charge.’ Journal of Political Economy 88(1), 199–208.