Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture

Posted: 2 Nov 2004  

David L. Hummels

Purdue University - Department of Economics; National Bureau of Economic Research (NBER)

Alexandre M. Skiba

University of Kansas - School of Business

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Abstract

Alchian and Allen show that a per unit transactions cost lowers the relative price of, and raises the relative demand for, high-quality goods. We extend their theory, deriving a relationship between per unit and ad valorem trade costs and the quality composition of trade. Detailed international trade data for many importers and exporters are used to test these predictions. Within a narrowly defined commodity classification, exporters charge destination-varying prices that covary positively with shipping costs and negatively with tariffs. These results provide a clear rejection of the iceberg assumption on transportation costs and a strong confirmation of the classical Alchian-Allen hypothesis. We show that these results cannot be explained by monopoly pricing-to-market behavior.

Suggested Citation

Hummels, David L. and Skiba, Alexandre M., Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture. Journal of Political Economy, Vol. 112, pp. 1384-1402, December 2004. Available at SSRN: https://ssrn.com/abstract=612474

David L. Hummels (Contact Author)

Purdue University - Department of Economics ( email )

West Lafayette, IN 47907-1310
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Alexandre (Sasha) Mykolajovych Skiba

University of Kansas - School of Business ( email )

1300 Sunnyside Avenue
Lawrence, KS 66045
United States

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