Japanese and Korean Automobile Exports and the Alchian-Allen Theorem

This paper compares data on Japanese and Korean automobile exports to the United States 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. 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.