Working Paper
The Generalized Alchian-Allen Theorem
Junichi Minagawa, Thorsten Upmann
CESifo, Munich, 2012
CESifo Working Paper No. 3969
CESifo, Munich, 2012
CESifo Working Paper No. 3969
The Alchian-Allen substitution theorem states that an increase of the prices of two similar goods by the same amount leads to a relative increase in the compensated demand of the more expensive good. In this paper we generalize this theorem to ordinary demand functions and show under which conditions the Alchian-Allen result continues to hold when income and endowment effects are taken into account.
CESifo Category
Empirical and Theoretical Methods
Labour Markets
Empirical and Theoretical Methods
Labour Markets
Keywords: The Alchian-Allen theorem, income and endowment effects
JEL Classification: D110