Theoretical Mathematics & Applications

On 'Shipping the Good Apples Out'

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• Abstract

   

  Alchian and Allen's (1964) economic theorem, 'shipping the good apples out', forwards that standard or lower quality goods are more heavily consumed within the vicinity of production as opposed to much farther away. The better apples are shipped away because the fixed cost of transportation lowers the relative price.  This paper reconciles two determining theoretical views supporting this substitution theorem. Borcherding and Silberberg (1978) defend the theorem for substitute goods (standard versus quality apples) making the case that close substitutes would interact with all other goods modeled in a like manner. Bauman (2004) generalized Borcherding and Silberberg's work and developed a broader set of sufficient conditions that recognize limited complementarity.  Situational numerical simulations are used to dissect model differences.

   

  JEL classification numbers: C02, D11, L15

  Keywords: Constrained minimization, consumer theory, transportation cost.