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The Generalized Alchian-Allen Theorem

Author

Listed:
  • Junichi Minagawa
  • Thorsten Upmann

Abstract

The Alchian-Allen substitution theorem states that an increase of the prices of two similar goods by the same amount leads to a relative increase in the compensated demand of the more expensive good. In this paper we generalize this theorem to ordinary demand functions and show under which conditions the Alchian-Allen result continues to hold when income and endowment effects are taken into account.

Suggested Citation

  • Junichi Minagawa & Thorsten Upmann, 2012. "The Generalized Alchian-Allen Theorem," CESifo Working Paper Series 3969, CESifo.
    • Handle: RePEc:ces:ceswps:_3969
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp3969.pdf
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    References listed on IDEAS

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    1. repec:ebl:ecbull:v:4:y:2006:i:35:p:1-6 is not listed on IDEAS
    2. Robert Lawson & Lauren Raymer, 2006. "Testing the Alchian-Allen Theorem: A Study of Consumer Behavior in the Gasoline Market," Economics Bulletin, AccessEcon, vol. 4(35), pages 1-6.
    3. Borcherding, Thomas E & Silberberg, Eugene, 1978. "Shipping the Good Apples Out: The Alchian and Allen Theorem Reconsidered," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 131-138, February.
    4. Cowen, Tyler & Tabarrok, Alexander, 1995. "Good Grapes and Bad Lobsters: Applying the Alchian and Allen Theorem," Economic Inquiry, Western Economic Association International, vol. 33(2), pages 253-256, April.
    5. David Hummels & Alexandre Skiba, 2004. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1384-1402, December.
    6. Liu, Liqun, 2011. "The Alchian-Allen theorem and the law of relative demand: The case of multiple quality-differentiable brands," Mathematical Social Sciences, Elsevier, vol. 61(1), pages 52-57, January.
    7. Tetsuya Saito, 2008. "An Expository Note on Alchian-Allen Theorem When Sub-Utility Functions are Homogeneous of Degree n > 0 with Two-Stage Budgeting," Economics Bulletin, AccessEcon, vol. 6(30), pages 1-12.
    8. T Nesbit, 2007. "Excise Taxation and Product Quality: The Gasoline Market," Economic Issues Journal Articles, Economic Issues, vol. 12(2), pages 1-14, September.
    9. Sobel, Russell S & Garrett, Thomas A, 1997. "Taxation and Product Quality: New Evidence from Generic Cigarettes," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 880-887, August.
    10. repec:ebl:ecbull:v:6:y:2008:i:30:p:1-12 is not listed on IDEAS
    11. Bertonazzi, Eric P & Maloney, Michael T & McCormick, Robert E, 1993. "Some Evidence on the Alchian and Allen Theorem: The Third Law of Demand?," Economic Inquiry, Western Economic Association International, vol. 31(3), pages 383-393, July.
    12. Yoram Bauman, 2004. "Shipping the Good Apples Out: A New Perspective," Economic Inquiry, Western Economic Association International, vol. 42(3), pages 534-536, July.
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    Cited by:

    1. Minagawa, Junichi & Upmann, Thorsten, 2013. "A note on parental time allocation," Labour Economics, Elsevier, vol. 25(C), pages 153-157.
    2. Minagawa, Junichi & Upmann, Thorsten, 2013. "A conditional demand approach to the Alchian–Allen effect," Economics Letters, Elsevier, vol. 120(3), pages 546-551.

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    More about this item

    Keywords

    The Alchian-Allen theorem; income and endowment effects;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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