Shipping the Good Apples Out?  An Empirical Confirmation of the

Alchian-Allen Conjecture

David Hummels

Alexandre Skiba

Purdue University

October 2001

Abstract:  We model demand for quality differentiated goods to derive a

relationship between trade costs and the quality composition of trade.

Detailed bilateral data on traded goods' prices, quantities and shipping

costs for many importers and exporters are used to test these

predictions.  These data provide a strong rejection of the iceberg

assumption on transportation costs and a strong confirmation of the

Alchian Allen hypothesis.  Exporters charge different fob prices for the

same good to different importers; these prices co-vary positively with

shipping costs and negatively with tariffs.  That is, shipping costs

operate as a quantitative restriction similar to quotas.  Finally, we

provide an alternative explanation of our results in terms of optimal

pricing-to-market by monopolistically competitive firms in the face of

per unit transport charges.