Shipping the Good Apples Out: A New Perspective

Abstract

An alternative explanation is provided for the Alchian and Allen substitution theorem, which posits that a per unit tax or shipping fee applied to similar goods will increase the relative consumption of the higher‐quality good. The usual explanation is that consumers substitute out of “bad apples” and into “good apples.” This article generalizes the Alchian and Allen result in an n‐good world, providing an alternative explanation that is more cogent in situations where the two goods (for example $500 and $5 wines) are not close substitutes.

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