A Test of the Alchian-Allen Conjecture with Transaction-level Trade Data - Author Accepted Manuscript

Jul 19, 2026

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Examines the Alchian-Allen conjecture using Kosovo transaction-level import value, tariff duty, and transport cost data for finely disaggregated products. Regression results indicate transport costs contain a substantial per-unit component, with the freight-price elasticity far below the unitary level implied by the iceberg transport cost hypothesis. Import unit values increase with transport costs and decline with ad valorem tariffs, supporting the conjecture’s prediction that per-unit transport costs shift demand toward higher-quality varieties in high-freight destinations.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages8

Reading Time20 min

Abstract

Introduction

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Public Disc losure Authorized AUTHOR ACCEPTED MANUSCRIPT FINAL PUBLICATION INFORMATION A Test of the Alchian-Allen Conjecture with Transaction-level Trade Data The definitive version of the text was subsequently published in Applied Economic Letters, 27(8), 2020-02 Published by Taylor and Francis and found at [http://dx.doi.org/10.1080/13504851.2020.1728219](http://dx.doi.org/10.1080/13504851.2020.1728219) Pub lic Disc losure Authorized THE FINAL PUBLISHED VERSION OF THIS MANUSCRIPT IS AVAILABLE ON THE PUBLISHER’S PLATFORM This Author Accepted Manuscript is copyrighted by World Bank and published by Taylor and Francis. It is posted here by agreement between them. Changes resulting from the publishing process—such as editing, corrections, structural formatting, and other quality control mechanisms—may not be reflected in this version of the text. You may download, copy, and distribute this Author Accepted Manuscript for noncommercial purposes. Your license is limited by the following restrictions: (1) You may use this Author Accepted Manuscript for noncommercial purposes only under a CC BY-NC-ND 3.0 IGO license [http://creativecommons.org/licenses/by-nc-nd/3.0/igo](http://creativecommons.org/licenses/by-nc-nd/3.0/igo). (2) The integrity of the work and identification of the author, copyright owner, and publisher must be preserved in any copy. (3) You must attribute this Author Accepted Manuscript in the following format: This is an Author Accepted Manuscript by Choi, Jieun; Minondo, AsierA Test ofthe Alchian-Allen Conjecture with Transaction-level Trade Data © World Bank, published in the Applied Economic Letters27(8) 2020-02 CC BY-NC-ND 3.0 IGO [http://creativecommons.org/licenses/by-nc-nd/3.0/igo](http://creativecommons.org/licenses/by-nc-nd/3.0/igo) [http://](http://) [dx.doi.org/10.1080/13504851.2020.1728219](dx.doi.org/10.1080/13504851.2020.1728219) © 2020 World Bank A test of the Alchian{Allen conjecture with transaction-level trade data Jieun Choi a, Asier Minondob a The World Bank, 1818 H St NW, Washington, DC 20433, United States. ; b Deusto Business School, University of Deusto, Camino de Mundaiz 50, 20012 Donostia-San Sebasti􀀓an, Spain. Reserch a􀀎liate of Instituto Complutense de Estudios Internacionales ARTICLE HISTORY Compiled June 18, 2018 ABSTRACT We use Kosovo's transaction-level import value, tari􀀋 duties and transport cost data for very 􀀌nely-disaggregated products to test the Alchian{Allen conjecture. First, we show that the elasticity of freight costs to import prices is much lower than the unitary elasticity predicted by the iceberg transport cost hypothesis. Second, we 􀀌nd that import unit values rise with transport costs and decline with ad valorem tari􀀋s. Our results con􀀌rm the Alchian{Allen conjecture that per-unit transport costs reduce the price of high-quality varieties relative to low-quality varieties, raising their relative demand in high freight cost destinations. KEYWORDS Alchian{Allen conjecture; transaction-level data; Kosovo; iceberg transport costs. JEL CLASSIFICATION F02,F10, 1. Introduction Alchian and Allen (1964) conjectured that if transport costs had a per-unit component, sales of high-quality varieties would be larger in more distant destinations. This paper tests the validity of this conjecture using Kosovo's transaction-level import price, tari􀀋 duties, and freight data for highly disaggregated product categories and 􀀌nely de􀀌ned origins and destinations. Our regression analyses support the Alchian{Allen conjecture. First, we con􀀌rm that transport costs have a large per-unit component. We show that the elasticity of freight costs with respect to prices is much lower than the unitary elasticity predicted by the iceberg transport cost hypothesis. Second, we 􀀌nd a positive association between the quality of the products imported by Kosovo and the freight cost. In contrast, the quality of imported products decli

FAQs

What data are used to test the Alchian-Allen conjecture?

The analysis uses Kosovo transaction-level import values, tariff duties, and transport costs for very finely disaggregated products, along with detailed origin and destination information.

How do the results compare to the iceberg transport cost hypothesis?

Freight costs respond to import prices with elasticity much lower than the unitary elasticity predicted by the iceberg transport cost hypothesis.

How do transport costs and tariffs relate to import unit values?

Import unit values rise with transport costs and fall with ad valorem tariffs.

Jul 19, 2026

Upload by Eden