<p>This is called the Alchian–Allen effect. </p>

<blockquote>
  <p>The Alchian–Allen effect was described in 1964 by Armen Alchian and
  William R Allen in the book University Economics (now called Exchange
  and Production). <strong>It states that when the prices of two substitute
   goods, such as high and low grades of the same product, are both
   increased by a fixed per-unit amount such as a transportation cost or
   a lump-sum tax, consumption will shift toward the higher-grade
   product.</strong> This is true because the added per-unit amount decreases the
  relative price of the higher-grade product.</p>
  
  <p>Suppose, for example, that high-grade coffee beans are \$3/pound and
  low-grade beans \$1.50/pound; in this example, high-grade beans cost
  twice as much as low-grade beans. Now add a per-pound international
  shipping cost of \$1. The effective prices are now \$4 and \$2.50;
  high-grade beans now cost only 1.6 times as much as low-grade beans.
  This reduced ratio of difference will induce distant coffee-buyers to
  now choose a higher ratio of high-to-low grade beans than local
  coffee-buyers. (Prices are illustrative only).</p>
  
  <p>The effect has been studied as it applies to illegal drugs and it has
  been shown that the potency of marijuana increased in response to
  higher enforcement budgets, and there was a similar effect for alcohol
  in the U.S. during Prohibition.</p>
  
  <p><strong>Another example is that Australians drink higher-quality Californian wine than Californians, and vice versa, because it is only worth the  transportation costs for the most expensive wine.</strong></p>
</blockquote>

<p>From the <a href="https://en.wikipedia.org/wiki/Alchian%E2%80%93Allen_effect" rel="noreferrer">Alchian–Allen Wikipedia page</a>, emphasis mine. </p>

<p>I learned about this paradox in the context of <em>Why the Best Washington Apples are Shipped out of State</em>, discussed in a chapter of a fun popular economics book <a href="http://rads.stackoverflow.com/amzn/click/1840640499" rel="noreferrer">Puzzles and Paradoxes in Economics</a> which also happens to be a great source of undergraduate economics exam questions.</p>

CC BY-SA 3.0
2016-01-27T18:02:23.800Z
I was almost certainly thinking of the 4th citation on that wikipage, which is a link to Marginal Revolution. Thanks very much!
Jason Coyne
CC BY-SA 3.0
2016-01-27T12:41:04.470Z
2016-05-05T11:58:01.260Z
2016-05-05T11:58:01.260Z
BKay
<p>I remember reading a study/paper saying that the AVERAGE bottle of french wine drunk in the US is better than the average bottle of french wine drunk in France, due to the fact that nobody bothers to ship the crappy stuff. Anyone got a link?</p>

<microeconomics><reference-request>
Quality of French wine in the US vs French wine in France
Jason Coyne
# Quality of French wine in the US vs French wine in France

(Asked by: username_0 on 2016-01-27)

I remember reading a study/paper saying that the AVERAGE bottle of french wine drunk in the US is better than the average bottle of french wine drunk in France, due to the fact that nobody bothers to ship the crappy stuff. Anyone got a link?

**Tags:** microeconomics, reference-request

---

## 1 answers

### Answer by username_1 on 2016-01-27. Score: 15 | Accepted answer

This is called the Alchian–Allen effect.

> The Alchian–Allen effect was described in 1964 by Armen Alchian and
> William R Allen in the book University Economics (now called Exchange
> and Production). **It states that when the prices of two substitute
> goods, such as high and low grades of the same product, are both
> increased by a fixed per-unit amount such as a transportation cost or
> a lump-sum tax, consumption will shift toward the higher-grade
> product.** This is true because the added per-unit amount decreases the
> relative price of the higher-grade product.
>
> Suppose, for example, that high-grade coffee beans are \$3/pound and
> low-grade beans \$1.50/pound; in this example, high-grade beans cost
> twice as much as low-grade beans. Now add a per-pound international
> shipping cost of \$1. The effective prices are now \$4 and \$2.50;
> high-grade beans now cost only 1.6 times as much as low-grade beans.
> This reduced ratio of difference will induce distant coffee-buyers to
> now choose a higher ratio of high-to-low grade beans than local
> coffee-buyers. (Prices are illustrative only).
>
> The effect has been studied as it applies to illegal drugs and it has
> been shown that the potency of marijuana increased in response to
> higher enforcement budgets, and there was a similar effect for alcohol
> in the U.S. during Prohibition.
>
> **Another example is that Australians drink higher-quality Californian wine than Californians, and vice versa, because it is only worth the transportation costs for the most expensive wine.**

From the [Alchian–Allen Wikipedia page](https://en.wikipedia.org/wiki/Alchian%E2%80%93Allen_effect), emphasis mine.

I learned about this paradox in the context of *Why the Best Washington Apples are Shipped out of State*, discussed in a chapter of a fun popular economics book [Puzzles and Paradoxes in Economics](http://rads.stackoverflow.com/amzn/click/1840640499) which also happens to be a great source of undergraduate economics exam questions.

> **Comments:**
> **username_0**: I was almost certainly thinking of the 4th citation on that wikipage, which is a link to Marginal Revolution. Thanks very much!  

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