Japanese and Korean automobile exports and the Alchian-Allen theorem

Abstract

This paper compares data on Japanese and Korean automobile exports to the USA to examine consistency with the Alchian–Allen theorem. The theorem suggests that imposing a per unit charge such as transport cost will lower the relative price and increase the relative consumption of higher quality cars. Empirical results show that the relative price of higher quality cars is not necessarily lower with increased shipping costs, measured by CIF charges (cost, insurance and freight). A possible explanation is that insurance and other shipping charges are imposed based on the car price, and these charges reduce or eliminate the Alchian–Allen effect of per–unit freight charge.