The Generalized Alchian-Allen Theorem
10 Pages Posted: 31 Oct 2012
Date Written: October 30, 2012
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.
Keywords: The Alchian-Allen theorem, income and endowment effects
JEL Classification: D110
Suggested Citation: Suggested Citation
Minagawa, Junichi and Upmann, Thorsten, The Generalized Alchian-Allen Theorem (October 30, 2012). CESifo Working Paper Series No. 3969, Available at SSRN: https://ssrn.com/abstract=2168633 or http://dx.doi.org/10.2139/ssrn.2168633
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