Shipping the good apples out - an Alchian reminder

I need to get back to blogging my columns. Been using Twitter for too much microblogging and linking to them, not enough archiving of them here. 

At Newsroom this week I'd reminded folks about Hotelling and pricing of non-renewable resources over time - with application to carbon forestry.

Last time around at Newsroom, I'd reminded folks about Armen Alchian and shipping the good apples out - with application to ag exports and complaints about shipping the good apples out. 

The piece concludes:

Even consumers with identical incomes and identical preferences will be more inclined toward the higher quality goods in situations where the purchase of a good or service comes with an added fixed cost – eg transportation. Or, in the case of parents with children, hiring a babysitter.

“If they hire baby sitters at, say, $1 an hour [remember that Alchian was writing decades ago!] and are out for four hours, it will cost $4 just to leave the house. Now, add the cost of two movie tickets at $1 each, and compare that total cost with the cost of going to the theater (at $4 per ticket). The theater costs a total of $12, and movies cost $6. The theater, then, costs twice what a movie costs. But if a couple has no children and can avoid the baby-sitter fee, the movie will cost $2 and the theater $8 – a ratio of 4 to 1: the theater is relatively more expensive. In our original question, we did not assume parents will go to the theater more than people who have no children; we said, when young parents go out, they will go to the theater a larger fraction of the time than will childless couples. QED.”

Beautiful and concise. Once you see it, you can’t stop seeing it. And you can’t help but notice when others fail to notice this ‘Third Law of Demand’.

There is a very good reason New Zealand’s farmers ship out the best produce. If transporting top quality produce doesn’t cost much more than transporting more standard fare, then our best will always be relatively less expensive, as compared with standard goods, in our export markets.

And these effects work in both directions. New Zealand will import a lot of other countries’ good grapes, or good oranges. Their lower-grade produce will be less likely to be exported.

You could try to undo these effects in some ‘rethinking’ of food systems, but it really wouldn’t be a good idea.