Alchian–Allen effect
en.wikipedia.org
Alchian–Allen effect
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Re: Alchian–Allen effect
#2> when the prices of two substitute goods, such as high and low grades of the same product, are both increased by a fixed per-unit amount such as a transportation cost or a lump-sum tax, consumption will shift toward the higher-grade product. This is true because the added per-unit amount decreases the relative price of the higher-grade product.
> Another example is that Australians drink higher-quality Californian wine than Californians, and vice versa, because it is only worth the transportation costs for the most expensive wine.
Re: Alchian–Allen effect
#3I don't see anything in the article about the extent to which this effect has been observed in the real world. Is it another example of economists assuming that people are idealised rational actors (who would prefer a 1.6x coffee bean premium to a 2x, to take the example in the article), or is there some hard evidence that it explains the real behaviour of real people?
Re: Alchian–Allen effect
#4I don't see anything in the article about the extent to which this effect has been observed in the real world. Is it another example of economists assuming that people are idealised rational actors (who would prefer a 1.6x coffee bean premium to a 2x, to take the example in the article), or is there some hard evidence that it explains the real behaviour of real people?
They give 3 examples at the end:
"The effect has been studied as it applies to illegal drugs and it has been shown that the potency of marijuana increased in response to higher enforcement budgets,[2] and there was a similar effect for alcohol in the U.S. during Prohibition.[3] This effect is called Iron law of prohibition or Cardinal rule of prohibition.
Another example is that Australians drink higher-quality Californian wine than Californians, and vice versa, because it is only worth the transportation costs for the most expensive wine.[4]"
Re: Alchian–Allen effect
#5> The effect has been studied as it applies to illegal drugs and it has been shown that the potency of marijuana increased in response to higher enforcement budgets...
If the price of all marijuana goes up, then I bet overall usage of it goes down even if the individual potency goes up.
Re: Alchian–Allen effect
#6I didn't realize they had a name for it... it seems so obvious.
Re: Alchian–Allen effect
#7> The effect has been studied as it applies to illegal drugs and it has been shown that the potency of marijuana increased in response to higher enforcement budgets... If the price of all marijuana goes up, then I bet overall usage of it goes down even if the individual potency goes up.
Depends... if quality goes up, sometimes that grows the demand for a product. Kraft Parmesan convinced me I didn't like Parmesan for the longest time...
Re: Alchian–Allen effect
#8I didn't realize they had a name for it... it seems so obvious.
Why shouldn't obvious things have names?
Re: Alchian–Allen effect
#9I didn't realize they had a name for it... it seems so obvious.
> it seems so obvious.
I'm not sure the effect is logically sound -- before the price hikes you weren't willing to pay a dollar more for name brand (or premium drugs etc), but after the price hike you are? I'm not sure if the authors have a mathematical model supporting the decision, or are just observing illegal drug markets and generalizing.
Re: Alchian–Allen effect
#10I didn't realize they had a name for it... it seems so obvious.
It doesn't sound obvious or universally true to me. For example: what if the expensive product is of only 1% better quality than the cheap product? Will people who use the expensive product not think that they are paying too much for too little gain, and switch to the cheaper product?