The Alchian-Allen Theorem
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The Alchian-Allen Theorem
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Re: The Alchian-Allen Theorem
#2[deleted]
Re: The Alchian-Allen Theorem
#3I just checked out the wikipedia page of Armen Alchian and it appears that he died today http://en.wikipedia.org/wiki/Armen_Alchian.
Re: The Alchian-Allen Theorem
#4Should it be called a theorem? It looks to me more like a theory, since economics is not an exact science like mathematics. According to Wikipedia, [1] a theorem is fundamentally deductive, in contrast with a scientific theory, which is empirical.
Re: The Alchian-Allen Theorem
#5By "increase consumption of the higher-quality good," is that in absolute terms, or relative to the lower-quality good?
Is there a concrete example of "reasonable" demand functions under which a fixed increase leads to an absolute increase of the higher-quality good?
Re: The Alchian-Allen Theorem
#6Should it be called a theorem? It looks to me more like a theory, since economics is not an exact science like mathematics. According to Wikipedia, [1] a theorem is fundamentally deductive, in contrast with a scientific theory, which is empirical. [1] http://en.wikipedia.org/wiki/Theorem
My guess is that it's a "theorem" in the sense that you could come up with some mathematical model of economics in which some translation of Alchain-Allen into a mathematical statement would be a provable mathematical theorem.
Alchain-Allen being true in most or every model of economics (as the Church-Turing thesis [1] is true in most models of computation), or being always true in reality, is a much more debatable question.
Real demand curves can be mighty pathological, for example, you can have D'(P) > 0 [2] if the good in question is something people buy to show off their wealth, and so actually like it to be more expensive.
[1] http://en.wikipedia.org/wiki/Church_Turing_Thesis
[2] Economists like to put demand on the horizontal axis and price on the vertical axis. That convention is insane, so I ignore it when I can.
Re: The Alchian-Allen Theorem
#7I know very little about economics. I will be happy to know if this 'theorem' is supported by experimental evidence (none were mentioned in the article). Otherwise it should really be called a hypothesis.
Re: The Alchian-Allen Theorem
#8By "increase consumption of the higher-quality good," is that in absolute terms, or relative to the lower-quality good? Is there a concrete example of "reasonable" demand functions under which a fixed increase leads to an absolute increase of the higher-quality good?
[deleted]
Re: The Alchian-Allen Theorem
#9By "increase consumption of the higher-quality good," is that in absolute terms, or relative to the lower-quality good? Is there a concrete example of "reasonable" demand functions under which a fixed increase leads to an absolute increase of the higher-quality good?
[deleted]
In your example you should be adding a fixed cost to both goods. I.e. imagine, that a country introduced a universal vehicle tax of 20K. So, buyers will be choosing between 40K Toyota and 70K BMW.
So, before the tax BMW would be 2.5 times more expensive then Toyota, but only 1.75 times after the tax.
Which still does not answer the question about the increase in consumption in absolute or relative terms.
Re: The Alchian-Allen Theorem
#10Should it be called a theorem? It looks to me more like a theory, since economics is not an exact science like mathematics. According to Wikipedia, [1] a theorem is fundamentally deductive, in contrast with a scientific theory, which is empirical. [1] http://en.wikipedia.org/wiki/Theorem
Wikipedia article is actually written about Alchian–Allen effect rather then a theorem: http://en.wikipedia.org/wiki/Alchian%E2%80%93Allen_effect