The Generalized Alchian-Allen Theorem
Chuo University - Graduate School of Economics
University of Duisburg-Essen - Mercator School of Management; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
October 30, 2012
CESifo Working Paper Series No. 3969
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.
Number of Pages in PDF File: 10
Keywords: The Alchian-Allen theorem, income and endowment effects
JEL Classification: D110working papers series
Date posted: October 31, 2012
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