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Testing the Alchian–Allen theorem for three goods using the pseudo Poisson model
Author(s) -
Miljkovic Dragan,
Gómez Miguel I.,
Sharma Anupa,
Puerto Sergio A.
Publication year - 2019
Publication title -
agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.29
H-Index - 82
eISSN - 1574-0862
pISSN - 0169-5150
DOI - 10.1111/agec.12525
Subject(s) - heteroscedasticity , poisson distribution , ordinary least squares , mathematics , econometrics , zero inflated model , quality (philosophy) , sample (material) , statistics , economics , poisson regression , population , demography , sociology , philosophy , chemistry , epistemology , chromatography
We show that the Alchian–Allen theorem holds in three‐good world. We empirically test the theorem by examining the relative demand for three quality‐differentiated coffee varieties sold globally and confirm that a common per‐unit charge increases the overall quality of coffee demanded. Our empirical specification employs the Poisson pseudo maximum likelihood method, which prevents sample selection bias when zero flows between country pairs occur and estimated parameter inconsistency when the data exhibit heteroscedasticity. This is a significant improvement compared to previous practice of using the ordinary least squares to estimate the log‐log formulation, which led to both biased and inconsistent parameter estimates.