Alchian and Allen hypothesized that a country will export high rather than low quality goods. Here we show that if the inherent attributes of the commodities are identical the country will only export the high-quality good.

We consider the optimal education policies of a small economy whose government has a limited budget. Initially, the economy is closed and the government chooses its education policy to maximize welfare under autarky. Then the economy trades with the rest of the world. Lastly, the government...