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JWE Volume 1 | 2006 | No. 1

Journal of Wine Economics Volume 1 | 2006 | No. 1

Introduction to the Issue

Kym Anderson, Orley Ashenfelter, Victor Ginsburgh, Robert Stavins & Karl Storchmann
Pages: 1
Editorial

It is a pleasure to introduce the first issue of The Journal of Wine Economics (JWE). The JWE is meant to provide a focused outlet for high-quality, peer-reviewed research on economic topics related to wine. Although wine economics papers have been, and will continue to be, published in leading general and agricultural economics journals, the number of high-quality papers has grown to such an extent that a specialized journal can provide a useful platform for the exchange of ideas and results.

The JWE is open to any area related to the economic aspects of wine, viticulture, and oenology. It covers a wide array of topics, including, but not limited to: production, winery activities, marketing, consumption, as well as macroeconomic and legal topics. The JWE will be published twice a year and it will contain main papers, short papers, notes and comments, reviews of books, films and wine events, as well as conference announcements.

In conjunction with the journal, we have formed a companion society – The American Association of Wine Economists (AAWE). The AAWE is a non-profit, educational organization dedicated to encouraging and communicating economic research and analyses and exchanging ideas in wine economics. Its principal activities include publishing The Journal of Wine Economics, which is fully owned and run by the AAWE. The non-profit character enables the Association to keep subscription prices low and, therefore, guarantees a wide distribution. Details of how to join are provided on the inside of the back cover and at www.wine-economics.org.

Kym Anderson, Orley Ashenfelter, Victor Ginsburgh, Robert Stavins & Karl Storchmann

Kym Anderson, Orley Ashenfelter, Victor Ginsburgh, Robert Stavins & Karl Storchmann

The launch of this journal would not have been possible without the generous financial support of Whitman College. We are particularly grateful to George Bridges, the President of Whitman College, and Patrick Keef, its Dean of Faculty, for their support and encour- agement.

Kym Anderson, University of Adelaide, CEPR and World Bank
Orley Ashenfelter, Princeton University
Victor Ginsburgh, Université Libre de Bruxelles
Robert Stavins, Harvard University

Introduction: Daniel L. McFadden

The Editors
Pages: 2
Introduction

Despite what many people think, the 18th Amendment to the Constitution, which prohibited the manufacture and sale of intoxicating spirits in the United States in 1920, was never repealed. Instead, the 20th Amendment, passed in 1933, provided the right to the States to regulate the manufacture and sale of alcoholic beverages. Since it was clearly intended that the States could bar the manufacture and sale of alcoholic beverages, this Amendment has been used by the States to regulate the interstate sale of alcoholic beverages-something which otherwise would not be possible because of the “Interstate Commerce” clause of the U.S. Constitution. Daniel McFadden, the distinguished economist who is the author of the following carefully reasoned economic analysis of this issue, is a professor at the University of California at Berkeley, a Nobel Prize recipient, a grape grower, and a winemaker. His paper was originally prepared at the request of the Federal Trade Commission.

Interstate Wine Shipments and E-Commerce

Daniel L. McFadden
Pages: 3-6
Full Text PDF
Excerpt

I am an economist, appearing on this panel as an individual at the request of FTC staff. I own a small vineyard in Napa Valley, California, have sold grapes to large and small wineries, and am familiar with the positions taken by many of the people in the wine industry regarding the opportunities and limitations surrounding direct sales of wine to consumers. My intention, however, is to speak here as an advocate for consumers rather than as an advocate for the wine business. My work as a professional economist concentrates primarily on consumer behavior, with applications in marketing, health, and the environment. I do not have a specialty in the economics of the wine industry. I am the E. Morris Cox Pro- fessor of Economics at the University of California, Berkeley, and have served as President of the Econometrics Society and as vice-president of the American Economics Associa- tion. In 2000, I won the Nobel Prize in Economics for my work on consumer choice behavior.

Measurement and Inference in Wine Tasting

Richard E. Quandt
Pages: 7-30
Abstract

The paper has three basic objectives: (1) to discuss and analyze the subtleties of ranking wines in blind tastings, (2) to analyze the degree of agreement or disagreement among the tasters (judges) and (3) to shed some light on the problem of identifying the wines and to determine when the identifications of the judges might be called statistically significant. The first issue utilizes the rank sums or the related measure, “votes against,” and discusses the appropriateness of a statistical test introduced by Kramer. The second introduces Kendall’s W coefficient of concordance and discusses some other, related measures. The third derives the finite sample distribution of the number of correct identifications under the null hypothesis of random identifications, from which critical values can be obtained, both for the case in which each wine has to be identified exactly and the case in which there is a small number of different types of wine that have to be identified.

Introduction: Dennis V. Lindley

The Editors
Pages: 32
Introduction

Dennis Lindley is Emeritus Professor at University College London. Together with Bruno de Finetti, Jerzy Neyman, Leonard Savage, and a few others he is recognized as one of the most influential statisticians of his generation. In 2002, he was awarded the Guy medal in Gold by the (British) Royal Statistical Society for his major contributions to statistics, Bayesian methodology, and decision theory. Among the many papers he wrote, there are two that are of more immediate concern to us. The one that we publish here, and another one he wrote a few years ago on “The Analysis of experimental data: the appreciation of tea and wine.” The editors assume that the order in which the two beverages are listed in the title of the paper is due to the erratic behavior of the alphabet, and not to Professor Lindley’s preferences.

Analysis of a Wine Tasting

Dennis V. Lindley
Pages: 33-41
Abstract

Analyses are made of two wine tastings, one of red and one of white wines, to compare French and American styles. It is concluded that there are differences between the wines and, in the case of the reds, national differences. It is shown that even skilled tasters can often be out by as much as 3 when judging on a scale from 0 to 20. For the statistician, Bayes factors are contrasted with F-values.

What Determines Wine Prices: Objective vs. Sensory Characteristics

Sébastien Lecocq & Michael Visser
Pages: 42-56
Full Text PDF
Abstract

The hedonic technique is applied to wines. In the price equation we include objective characteristics appearing on the label, as well as sensory characteristics and a grade assigned by expert tasters. We have three almost identically structured data sets (two on Bordeaux wines, and one on Burgundy wines). The results are used to make comparisons between two of the most important wine regions in France, and comparisons over time (the two Bordeaux data sets are sampled at different points in time).

Early Sales of Bordeaux Grands Crus

Philippe Mahenc & Valérie Meunier
Pages: 57-74
Abstract

En primeur sales of Bordeaux grands crus occur every spring on the Bordeaux marketplace and represent the main source of supply for wine merchants. We address two specific issues related to the en primeur strategy. First, we study whether en primeur prices are good estimates of wines’ qualities, as well as how they may reveal any relevant information to uninformed buyers. Second, we consider which roles en primeur sales may play between traders, given the market informational and competitive structures.

Assessing the Effect of Information on the Reservation Price for Champagne: What are Consumers Actually Paying for?

Pierre Combris, Christine Lange and Sylvie Issanchou
Pages: 75-88
Abstract

Two series of Vickrey auctions have been performed to assess the effect of packaging information (bottle and label) on the reservation prices of ordinary consumers for five brut non-vintage Champagnes. As in other studies on wine tasting, packaging information is found to explain much more of the variation in willingness to pay than sensory information. Participants are unable, or unwilling, to put different values on the Champagnes after blind tasting, but significant differences in reservation prices appear when labels are disclosed. Detailed analysis of choices reveals a large heterogeneity in individual behaviors and valuations of the Champagnes included in this study.

Book & Film Reviews

The Judgment of Paris: California vs. France and the Historic 1976 Paris Tasting that Revolutionized Wine

By: George M. Taber
Reviewer: Orley Ashenfelter
Pages: 89-90
Full Text PDF
Book Review

George Taber has written much more than a book about a wine tasting. Sure, the Judgment of Paris must be the most famous organized wine tasting of all time. And sure, California cabernet and chardonnay wines topped fine French products on French soil with French judges at a time when such an outcome (1976) was considered impossible by everyone- not just the French!

But Taber’s book is more than the story of a wine tasting. In the same way that Sea Bis- cuit is more than a story about a horse race and The Jackie Robinson Story is more than a story about baseball, Judgment of Paris is the story of the development of the California wine industry and of the personalities who made it happen. If ever a story about wine could rise above the ubiquitous “cooking, wine, and spirits” category and find a wider public, this is it.

As the only journalist present for this historic event, Taber, a long time business reporter who was then at Time magazine, is uniquely situated to set the record straight. Taber tells his story by following the history of the two men who made the winning American wines: Mike Grgich, then winemaker at Chateau Montelena, who produced the chardonnay, and Warren Winiarski, founder of Stag’s Leap Wine Cellars, who produced the cabernet. Both these men have wonderful, classic American life stories of movement from nothing to something. Mike Grgich (born in Croatia 82 years ago as Miljenko Grgic?) arrived in the Napa Valley on a Greyhound bus in the summer of 1958 via Canada, where he had immi- grated in the hopes of a better life (and with $32 sewn into a shoe!) Warren Winiarski, for- merly a lecturer at the University of Chicago in their (now defunct) Great Books program, followed Route 66 to California with his wife and two young children with the same goal. Both men certainly had some familiarity with the products they were about to produce, but this was a far cry from what you can learn in a university today in Davis, Bordeaux, or Roseworthy (the famous enology program in Australia).

We learn a lot about the paths these men take and how they ended up being in the right place at the right time. Some of the common features of their good fortune seem almost eerie. Though Robert Mondavi gets a whole chapter devoted to him, the name that crops up over and over is J. Leland (Lee) Stewart. Amazingly, both Grgich’s and Winiarski’s first jobs in Napa were as assistants to Stewart. Connected to the Stanford family, Stewart’s Souverain Vineyard provided some of the finest early examples of Napa cabernet sauvi- gnon. (I have recently tasted Souverain cabernets from the 1960’s that remain delicious.) These early days in the Napa Valley were days of cooperation, conviviality, and a lot of learning by doing.

The research behind Taber’s writing is truly staggering. Taber tracks down the story behind the winemakers of all the wines in the competition, both American and French. We learn that the Veedercrest Chardonnay in the competition was made by Al Baxter, a bohe- mian spirit if ever there was one, who was a Professor of Philosophy at Berkeley and the author of the mystery novel Stay Me with Flagons! (The wine didn’t do so well, however, ranking 9th out of 10.)

There is a big payoff to Taber’s research, and especially to his felicitous writing style. We see it best in Chapter 19, where he tells the story of the “Stunning Upset.” Taber does two things admirably in this chapter. First, he sets the record straight. (Here I have a dis- claimer to make: I have published my own statistical analysis of the results of this wine tasting at http://www.liquidasset.com/tasting.html. As Taber correctly points out, however, the official tabulation did not include the scores of the English and American judges, who organized the event, while mine did! Though the overall results are not altered by this change, I am happy to stand corrected.) As Taber says, “…a whole mythology about the tasting grew up…as people in both California and Franc embellished the event….In fact, my major objective in writing this book was to set the record straight.”

And then Taber brings to life the complex interaction of the judges and their own reac- tions to the wines. Standing like a fly on the wall, while the judges tasted the wines blindly, Taber reports, “I soon realized that the judges were becoming totally confused. The panel couldn’t tell the difference between the French ones and those from California.” And, as they say, the rest is history.

Sideways

By: Alexander Payne
Reviewer: Robert Stavins
Pages: 91-93
Full Text PDF
Film Review

Anyone who is fairly serious about wine — from the relatively casual collector to the most knowledgeable oenophile — will tend to be skeptical about a commercial movie, particu- larly a Hollywood studio movie, in which wine consumption plays a central role. But very early in Alexander Payne’s “Sideways,” when Miles (Paul Giamatti) — a sad-sack, failed writer of novels and a lover of the grape — explains to his friend Jack (Thomas Haden Church) — a good-looking but over-the-hill television actor — how a white sparkling wine (1992 Byron) can be made from 100% Pinot Noir grapes and yet not exhibit even a tinge of red color, the first evidence appears that this movie about wine may have gotten it right.

That verdict was cemented for me just a few scenes later when the friends are driving through a bucolic countryside of vineyards in Santa Barbara County, at the beginning of what is to be a week-long bachelor party for the two in wine country prior to Jack’s wedding, where they eventually meet up with love-interests, Maya (Virginia Madsen) and Stephanie (Sandra Oh). Miles recommends a local winery to visit because of its excellent Chardonnay, at which suggestion Jack says, “I thought you hated Chardonnay.”

Miles quickly responds, “I like all varietals. I just don’t generally like the way they manipulate Chardonnay in California — too much oak and secondary malolactic fermentation.” At that moment, in a dark theater in Brookline, Massachusetts, I turned to my wife and said, “This is going to be good!” And it was … the first time I saw it, the second time, and the third time (which was at home with friends and a meal and a set of wines to accompany each of the scenes).

This is a seriously good movie, indeed an excellent one, the most recent of a long line of “road movies” that themselves are part of a “road literature” that includes Mark Twain’s Adventures of Huckleberry Finn, Henry Miller’s The Air-Conditioned Nightmare, Jack Kerouac’s On the Road, and Hunter Thompson’s Fear and Loathing in Las Vegas. But back to the movie, and the wine.

In “Sideways,” Miles is a classic oenophile, even if most of us would prefer not to be identified with a character who is (otherwise) distinctly unattractive in so many dimensions. But Miles gives himself away with his assessment of the nose of the first wine he and Jack taste at the first winery they visit (which was in reality, Sanford): “… a little citrus… maybe some strawberry… passion fruit… and there’s a hint of like asparagus… or like a nutty Edam cheese.”

With such descriptions of wine — and that’s only the first of many in the film — it may come as a surprise that there is no mention, none whatsoever, of wine ratings, those numerical assessments popularized in the United States by Robert Parker’s Wine Advocate and The Wine Spectator. Long discussions in the film about specific wines — old and new — never mention ratings. Why? A clue is found in the novel on which the movie is based, Rex Pickett’s excellent novel of the same name, published in 2004 (St. Martin’s Press).

In the book, when Miles is packing for his trip, he tosses into his suitcase a copy of Jancis Robinson’s The Oxford Companion to Wine (Oxford University, 1999), which he describes as the “brilliant and exhaustive tome on everything you ever wanted to know about the universe of wine. … I wanted to have with me the one book that had supplied me with all the basics of my one undying passion…” So, Jancis Robinson is his guru. And if you have read Robinson’s entertaining autobiography, Tasting Pleasure: Confessions of a Wine Lover (Viking, 1997), you know of her complete disdain for numerical ratings.

For those who have not yet seen the film, let me offer a checklist of wines that make appearances, some only very briefly. If you are able to identify every one of these in the film, you deserve to open a particularly good bottle tonight from your cellar: 1992 Byron Sparkling, Sanford Vin Gris, Kalyra Chardonnay, Kalyra Cabernet Franc, Fiddlehead Sau- vignon Blanc, 2001 Whitcraft Pinot Noir (Santa Maria Valley), Sea Smoke Botella Pinot Noir, Kistler Sonoma Coast Pinot Noir, Latour Pommard 1er Cru, Hitching Post Bien Nacido Pinot Noir, Hitching Post Highliner Pinot Noir, Andrew Murray Syrah, and 1961 Cheval Blanc.

Another challenge: seven wineries appear in the film, but their real names are not used. It is not impossible to identify them: Andrew Murray, Fess Parker, Fiddlehead, Firestone, Foxen, Kalyra, and Sanford.

Enough questions. Here are some answers, although to other questions. For the readers of this journal, I offer some wine trivia from “Sideways:”

Most of the wine used in the wine-tasting scenes was non-alcoholic, and the actors wound up drinking so much of it that it made them nauseated. Hence, they had to switch periodically to the real thing.

The picture that Miles looks at when at his mother’s home is actually a photo of Paul Giamatti and his father, Bart Giamatti, former Yale president and Major League Baseball commissioner.

The 1961 Cheval Blanc that Miles is saving for a special occasion is blended from Merlot and Cabernet Franc, the two grape varietals that Miles specifically denigrates in the film.

Anecdotal evidence, as reported by the international press, indicates that subsequent to the film’s release, sales of Pinot Noir increased by between 20% and 500% in various mar- kets.

The film’s cheery advertising poster portrays a bottle on its side, suggesting that the title, “Sideways,” refers to the cellar position of a wine bottle. But Rex Pickett’s novel makes clear from the first page that “sideways” is the characters’ slang for drunk. And, in truth, the novel is considerably more forthright and darker about the alcoholism that is very much a part of the story: Miles drinks to excess, particularly to drown his frequent sorrows.

Having said that, let me end with what is surely a high-point of the film, both for lovers of wine, and lovers in general. Maya asks Miles why he is so into Pinot Noir. His response, which is both moving and revealing, is this:

I don’t know. It’s a hard grape to grow. As you know. It’s thin-skinned, temperamental, ripens early. It’s not a survivor like Cabernet that can grow anywhere and thrive even when neglected. Pinot needs constant care and attention and in fact can only grow in specific little tucked-away cor- ners of the world. And only the most patient and nurturing growers can do it really, can tap into Pinot’s most fragile, delicate qualities. Only when someone has taken the time to truly understand its potential can Pinot be coaxed into its fullest expression. And when that happens, its flavors are the most haunting and brilliant and subtle and thrilling and ancient on the planet.

On hearing this, Maya’s heart opens to Miles for the first time. A few moments later, it’s Miles turn to ask Maya why she is into wine. Her answer:

I like to think about the life of wine, how it’s a living thing. I like to think about what was going on the year the grapes were growing, how the sun was shining that summer or if it rained… what the weather was like. I think about all those people who tended and picked the grapes, and if it’s an old wine, how many of them must be dead by now. I love how wine continues to evolve, how every time I open a bottle it’s going to taste different than if I had opened it on any other day. Because a bottle of wine is actually alive — it’s constantly evolving and gaining complexity. That is, until it peaks — like your ‘61 — and begin its steady, inevitable decline… And it tastes so fucking good.

Now Miles is swept away. And so am I.

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