All Working Papers

Wine markets exemplify experience goods, with prices shaped less by ex ante specified product characteristics than by non-material attributes coordinated through conventions and expert evaluations. We identify the power of collective and individual reputation mechanisms as main quality signals in a German fine wine cohort. The setting is the VDP, a private German association that codifies a terroir-oriented high quality regime. A hedonic price regression is estimated for VDP single-vineyard wines, covering 1646 wines from 185 of the 202 VDP wineries across all German wine regions. The internal classification of the VDP explains a large share of price variation (57.7% of the variation explained by our model), with higher tiers associated with sizeable premia (a 97.5% premium from lowest to highest tier). Individual reputation remains positive and significant but primarily differentiates within classification tiers. The findings indicate that the VDP operates as a valuable collective-reputation mechanism that coordinates willingness to pay and exercises interpretive authority over quality-relevant production conditions: origin and vineyard work function as complementary quality markers with measurable price effects.

Keywords: Wine Economics; Quality Classifications, Collective Reputation, Terroir, Labor, Hedonic Price Analysis.

This paper examines the performance of Madeira wines over time as an investable segment within the broader ne wine market. Using a rules-based framework, the paper constructs an index to track the secondary market performance of vintage and solera Madeira wines. Despite being one of the most unique wines in the world, Madeira has received relatively little attention in academic literature. Renowned for its virtually indestructible character and its symbolic role in the toast to the Declaration of Independence, Madeira occupies a signi cant place in the historical development of wine. Utilizing auction data, the index tracks a universe of eight leading producers and employs a Repeat Sales Regression (RSR) methodology. To address observation noise and data sparsity, a Kalman lter is applied to the quarterly series to derive an optimal estimate of the latent price state. The resulting index provides transparency into the performance of Madeira wine and contributes to the broader discourse on wine as an investment asset class.

Keywords: Madeira wine, ne wine investment, repeat sales regression

We identify “climate extrapolation” by exploiting a unique feature of the fine wine market: global comparability and locally determined prices. Using a novel dataset of Bordeaux Premier Cru auctions, we find that a one-standard-deviation increase in relative climate attention is associated with a 2.08% price decrease for identical bottles sold in the same month. This is consistent with the availability heuristic, as it is stronger during periods when climate change is more palpable. The discount reflects concerns from investors, who demand climate-risk premia for low-quality wines, and from consumers, who exhibit an aversion to wines near the end of their optimal consumption window.

KEYWORDS: auctions, risk premia, wine, climate change, extrapolation, salience

We study how tariffs affect prices along the supply chain using product-level data from a large U.S. wine importer during the 2019-2021 U.S. tariffs on European wines. Combining confidential transaction prices with foreign suppliers, U.S. distributors, and retail prices, we trace tariff pass- through from producers to consumers. Pass-through at the border is incomplete, yet consumers paid more than the tariff revenue collected. The dollar markups per bottle for the importer contracted, but expanded for the combined distributor-retailer segment. Price changes along the chain reached consumers after one year. We also document tariff engineering that biases unit values in trade statistics.

Keywords: Tariff pass-through, Supply chains

Geographical indications (GIs) are information signals based on a product’s geographical origin. They reduce information asymmetry for consumers and protect producers from imitation. This paper examines the local economic impact of GIs by focusing on the renowned Champagne AOC in France. Champagne is protected under the Appellation d’Origine Contrˆol´ee (AOC), the EU’s strongest GI classification. My identification strategy leverages the fact that the municipal-level boundary of the Champagne AOC was historically determined by political decisions, rather than viticultural qualities (i.e., terroir). Using granular geographic, economic, and fiscal data, I provide causal evidence that this institutional protection improves local economic outcomes beyond the wine sector. Despite a sharp increase in vineyard prices over the past two decades, there is no evidence of crowding out of other economic activity over time. These findings suggest that the projected expansion of the Champagne AOC could stimulate further regional economic development for newly admitted municipalities.

Keywords: geographical indications, regional development, Champagne wine

This paper examines the impact of shared religious composition on global wine trade. We assembled a novel dataset of bilateral wine trade flows and country-level religious affiliation for 102 countries from 1988 to 2023. Our theory-consistent gravity estimates show that a greater common share of Protestant denomination between trading partners is associated with increased bilateral wine trade. In contrast, higher shares of Roman Catholic, Orthodox, Muslim, and Other Christian denominations correspond to a lower trade intensity. To quantify the implications of religious similarity for global wine trade, we conducted a general equilibrium simulation. We find that increasing global alignment in the Protestant denomination would reduce wine trade costs more than eliminating all global tariffs, with major exporters seeing export gains up to 215%. These findings underscore the importance of cultural proximity as a non-economic driver of trade integration.

Keywords: Wine trade, religion, similarity, universal gravity model, general equilibrium simulations

This study explores the investment potential of South African ne wine within the broader context of emerging markets. Using a backtested portfolio selection approach with monthly rebalancing from March 29, 2019, to March 31, 2023, we evaluate the performance of equity-only portfolios against those incorporating ne wine indices, including the Top10 South African Fine Wine Index (SAFW10), a long with Liv-ex Fine Wine 100 (LXFW100) and Liv-ex Fine Wine 50 (LXFW50). Key performance measures such as total return, annualized return, Sharpe ratio, maximum drawdown, concentration coe cient, and portfolio turnover reveal that ne wine indices enhance portfolio diversi cation and improve risk-adjusted returns. In particular, the SAFW10 index demonstrates strong performance, strengthening the viability of ne wine as an alternative asset class in South Africa. These ndings contribute to the discourse on emerging market investments and support ongoing international comparative studies analyzing country-speci c wine indices in South Africa, Australia, and Argentina. This research underscores the role of ne wine as a nancial asset in an evolving global investment market.

We examine the asset-pricing implications of selection neglect – a failure to correct for censored information – in the fine wine market. Using a Markov Chain Monte Carlo model to account for the endogeneity of trading, we measure this bias as the difference between past observed and corrected returns. We find a strong negative relation between our measure and future returns, indicative of an upward bias in the observed prices that is eventually corrected. This effect is mitigated by investor attention, amplified by ambiguity, and proves to be a short-term mispricing effect, vulnerable to transaction and carrying costs.

Keywords: wine, selection neglect, auctions, risk premia, cross-section of returns

This paper design a rating system for wine competitions aimed at reducing wine produc- ers’ cost of multiple submissions necessary to diversify the risk of failing to win an award. The proposed rating system is applied to data of an actual wine competition, illustrating its benefits in terms of the mitigation of risk for a wine producer, as well as in terms of the reputation benefits that a a wine competition might gain by adopting it. Our results suggest three simple best-practice recommendations for a rating system designed to improve the informational efficiency of the wine competition market.

Keywords: Wine ratings, Wine competition, ANOVA

Sums of the ratings that judges assign to wines are a near universal method of determining the winners and losers of wine competitions. But ratings are stochastic so their sums are too, and “Stars & Bars” combinatorics show (1) that the same sum can be the result of billions of combinations of ratings and (2) that sums can hide differing amounts of agreement among judges. Using the combinatorics of sums, and a variation on Cochrane’s inverse variance method, a weighted sum of judges’ wine ratings is proposed and tested that (1) recognizes the uncertainty about a sum and (2) minimizes the disagreement among judges about that sum. A simple index of dispersion is proposed and tested that measures a continuum from perfect consensus to ratings that are indistinguishable from random assignments and then to distant clusters of ratings when groups of judges disagree.

Keywords: wine, ratings, statistics, combinatorics, consensus

Wine is the most differentiated of all farm products, with much of the differentiation based on the location of production. In 1980 the U.S. Government created American Viticultural Areas (AVAs) as a mechanism for wine producers to signal product quality and better capture the benefits from collective reputation associated with the location of production. California, which produces about 80% of U.S. wine, has 142 AVAs of which 16 are located within the Napa Valley AVA. The objective of this study is to develop an improved understanding of the role of climate and vintage weather as they affect the quality and prices of varietal wines and hence of the potential for climate change to disrupt the role of AVAs in providing signals of varietal wine quality associated with places of production. Our analysis is based on a sample of premium wines rated by Wine Spectator magazine between 1994 and 2022 and a comparable sample of secondary market auction prices from K&L Wine Merchants, each associated with a particular AVA and matched to spatially detailed weather data from PRISM. We derive estimates of the location- and variety-specific relationship between prices (and ratings) and weather and climate, and we use the estimates to compute the implied consequences for prices resulting from projected changes in climate over the remainder of the century.

Key Words: Wine prices and ratings, climate and weather, fine varietal wine, California AVAs

Analysis of mergers and acquisitions (M&A) among distributors of wines and spirits in the U.S. shows that M&A contributed to material consolidation among already large distributors. The aggregate U.S. market share for the five largest distributors is approximately 30% and the largest few distributors may have shares over 50% and 67% in some regional markets. In those regional markets, the Herfindahl-Hirschman Index of concentration exceeds the Department of Justice’s threshold for highly concentrated markets in which companies are presumed to have potential for anticompetitive behavior. Analysis of Federal Trade Commission and other documents shows that some parties allege that the dominant distributors do engage in anticompetitive actions. Other motivations for M&A include earnings growth, economies of scale, and response to changing regulatory and market conditions.

Keywords: wine, distributors, mergers, acquisitions, competition

Mergers and acquisitions among wine grape growers and wine producers are common. Transactions involve horizontal integration, vertical integration, portfolio adjustments, and other changes that lead to economies of scale, diversification, market power, and growth in assets and earnings. Transactions can also affect competition, prices, quality, employment, and innovation. Analysis of 30 transactions implies that consolidation is underway and that the bargaining and market powers of the incumbents is increasing. Those effects are public policy issues, and the Federal Trade Commission and the Department of Justice have caused some transactions to be restructured.

Keywords: wine, finance, competition, regulation

In competitive markets, reputation building is considered an impor- tant tool to reduce price competition and increase profits. However, from an empirical point of view, identifying the contribution of collective rep- utation on price net of other confounding variables such as quality, firm reputation and horizontal differentiation, is not trivial. In this work, using an extensive database on Italian geolocalized wineries, we exploit spatial discontinuity at the borders of the wine appellation areas in Piedmont and Tuscany to investigate the impact of collective reputation on price. Results show that collective reputation carries an important price pre- mium for well-known appellations, while the effect is not significant or even negative for weaker ones. This suggests that an excessive prolifer- ation of collective brands might not be useful and could even turn out being harmful as it can confuse buyers.

Keywords: Reputation, collective reputation, asymmetric information, quality standards, institutional signals, wine

Vote outcomes in elections are expected to be influenced by factors beyond simple economic and political considerations. For example, personality traits have been found to be associated with a voter’s political affiliation. Here we explore the role that curiosity may have in voting outcomes in recent U.S. elections. Using a pooled cross-sectional dataset on household-level purchases, we characterize curiosity through variety-seeking tendencies and then extend earlier voting models to examine how our curiosity variable affects election outcomes at both county and state levels. The results suggest that voting outcomes for liberal-leaning candidates are associated with greater purchase diversity patterns for food and alcoholic beverages.

Keywords: Political affiliation, vote outcome, variety-seeking tendencies, personality traits, food and alcohol

We argue that institutional power and influence are creating an environment in which the appointment of women to CEO, winemaking, viticulturist, and marketing roles has significantly increased in the Australian wine industry. Using logistic regression analysis, we find that the likelihood of women in all roles has significantly increased when comparing the period of 2007–2013 with 2021–2023. Our study confirms that the largest increase was for women in the CEO role. Our prediction that South Australia, as the regional center of wine policy, education, and research, would see the largest increase of women in all roles was not supported. We offer conclusions and future research directions.

Keywords: diversity, equality, gender, leadership, wine, women

China has been one of the most important sources of growth in global wine demand this century, accounting by 2017 for 7% of the world’s wine consumption and imports. But since then China’s per capita wine consumption has fallen every year and in 2022 was one-third of its 2017 peak, and its imports have more than halved. Certainly the COVID-19 disruption and associated slowdown in China’s income growth would account for some of that, but the fall in China’s alcohol consumption between 2019 and 2022 was considerably larger for wine (49%) than for spirits (14%) and beer (3%). Thus wine’s share of alcohol consumption in China fell by two-fifth over those three years. The article speculates on reasons behind the dramatic downturn, and finishes by drawing implications for wine-exporting countries.

Keywords: Chinese alcohol consumption, wine imports by China, wine production in China

Is a 91 points wine really different from a 89 points wine? Which wines are under-priced rela- tive to their quality? Answers to these questions are important for producers and consumers. This paper addresses these questions by constructing a wine rating system based on scores assigned by a panel of wine experts to a set of wines. Following a standard rating method- ology, wines are classified in ranked disjoint quality equivalence classes using measures of statistically and commercially significant score differences. The system is implemented using data of the ”Judgment of Paris” wine competition, Bordeaux en-primer expert scores and prices, and expert scores and price categories of a set of Italian wines. The proposed wine rating system is shown to provide an informative assessment of wine quality for producers and consumers, as well as a flexible template for wine competitions.

Keywords: Wine Ratings, ANOVA, Quantile Regressions, Finite Mixture Models.

With grapes left on the vine this vintage for want of tank space following the loss of China’s wine market, the industry cheered then news on 2 April 2022, of an interim Comprehensive Economic Cooperation Agreement (CECA) between Australia and India being signed by the two countries’ trade ministers. The possibility of such an agreement has been talked about since 2011 but negotiations lapsed in 2015, before re-opening in June 2020. Many still had low expectations of an agreement being reached promptly, and few expected wine import tariffs to be among those lowered most.

India has a whopping 150% tariff on all wine imports, but has agreed to reduce that on Australian bottled wine from the outset of this agreement coming into force. The tariff will be immediately lowered to 100% for bottles in the US$5 to $15 range and to 75% for bottles above US$15, and then lowered further, by 5 percentage points, every year for a decade. Since Australia’s wine exports to India are almost all are in the bottled commercial premium range, it means by the early 2030s those entering India’s market will face a tariff of just 50%, and of just 25% for super-premium wines. Moreover, India has committed to extend to Australia any market access improvements it may offer other countries in future bilateral, regional of multilateral trade agreements.

To see how that might boost Australia’s wine exports and offset the loss of the China market, this article first provides a summary of the Indian market and then uses our model of global beverage markets to assess the wine trade impacts of CECA.

Abstract. We propose to use the classical Borda rule to establish wine rankings. Unlike alternative approaches, this method has a powerful attribute: it is well-defined even if the panelists’ quality relations are not required to exhibit demanding properties such as completeness or transitivity. We apply the method to rank Bordeaux wines assessed by different experts, some of whom do not rate all of the wines under consideration. Journal of Economic Literature
Classification Numbers: C18, D71, L15, L66.
Keywords: Wines; Ratings; Rankings; Opinions; Borda rule.

The approach and survey used to examine non-market value in a stated preference study can influence the outcomes and impact the validity and reliability of value estimates. While prior research has investigated the impact of ‘price framing’ on decision-making in other disciplines, (i.e. marketing & psychology), little is known about its validity and reliability in Discrete Choice Experiments (DCEs) and environmental valuation. The study explores the effect of ‘price framing’ on DCE measurements. The tests are carried out using data from a choice experiment on preferences for natural preservatives in wine. The same respondents completed a nearly identical DCE survey, one with a real price and another with a percentage price change as cost attribute. 611 respondents completed the survey, and a panel mixed logit model was used for the analysis. Results demonstrate that ‘price framing’ remarkably influenced respondents WTP changes in attributes. The data reveals that while the rank order of importance of attributes, signs, and significance levels are similar for the two samples, they differ in the parameter magnitudes. The study sheds light on the establishment of guidelines for developing valid cost attributes in DCEs studies.

Keywords: Price framing, Discrete Choice Experiment, Mixed Logit Model

In this short note, we show that the results of the famous 1976 Judgment of Paris, a blind wine tasting of ten wines by eleven judges which ranked a Californian wine, Stag’s Leap Wine Cellars as first, do no longer hold. The “best” wines are French (Château Haut-Brion, Château Léoville Las Cases, and Château Mouton Rothschild). Two Californian wines (Ridge Vineyards Monte Bello and Heitz Wine Cellars) are very close to some of the Great Grands Crus de Bordeaux, but Stag’s Leap is far behind. It is not celar what happened. Either the wine was overated in 1976, or its quality decreased over time.
Keywords: Judgment of Paris 1976; Ranking of wines tasted in 1976

Using a dataset with 16 climate variables for locations representing 813 wine regions that cover 99% of the world’s winegrape area, we employ principal component analysis (PCA) for data reduction and cluster analysis for grouping similar regions. The PCA resulted in three components explaining 89% of the variation in the data, with loadings that differentiate between locations that are warm/dry from cool/wet, low from high diurnal temperature ranges, low from high nighttime temperatures during ripening, and low from high vapor pressure deficits. The cluster analysis, based on these three principal components, resulted in three clusters defining wine regions globally with the results showing that premium wine regions can be found across each of the climate types. This is, to our knowledge, the first such classification of virtually all of the world’s wine regions. However, with both climate change and an increasing preference for premium relative to non-premium wines, many of the world’s winegrowers may need to change their mixes of varieties, or source more of their grapes from more-appropriate climates.

We use data from Wine Spectator on 266,301 bottles from 12 countries sold in the United States to investigate the link between the score awarded by the guide and the price charged. In line with the literature, the link between quality and price is positive. In a deeper inspection, however, hedonic regressions show that the price premium attached to higher quality is significant only for “superstar” wines with more than 90 points (in a 50-100 scale), while prices of wines between 50 and 90 points are not statistically different from each other. Furthermore, an analysis performed through normal heteroskedastic and quantile regression models shows that the dispersion of quality-adjusted prices is described by an asymmetric U-shaped function of the score; that is, products with the lowest and highest quality have the highest residual standard deviation. Pursuing excellence is a risky strategy: the average price is significantly higher only for wines that achieve top scores, and the price premium becomes more volatile.

Keywords: Wine, price, quality
JEL codes: L11, Q11, L66

Much research shows that the ratings that judges assign to wines are uncertain and an acute difficulty in ratings-related research, and in calculating consensus among judges, is that each rating is one observation drawn from a unique and latent distribution that is wine- and judge-specific. A simple maximum entropy estimator is proposed that yields a maximum-entropy probability distribution for sample sizes of none, one, and more. A test of that estimator yields results that are consistent with the results of experiments in which blind replicates are embedded within flights of wines evaluated by trained and tested judges.

JEL Classifications: A10, C10, C00, C12, D12
Keywords: wine, judge, ratings, statistics, random

The rankings derived from the averages of points assigned by the judges of the red and white wines at the 1980 Contre-degustation Olympiades du Vin are compared to those determined using the Borda Count. For the white wines, Borda reversed the order of wines ranked second and third, and eleventh and twelfth by the averages. This put two California Chardonnays in the top two places and one in last place. For the red wines, Borda reversed the order of the two Burgundies in third and fourth place and breaks a tie in fifth place moving an Australian Pinot noir to sixth place behind a Burgundy. The difference in rankings is traced to the distortion caused by the wide spread of points awarded by the judges compared to the constant difference in the Borda Scores between non-tied adjacent alternatives.

Thanks in part to the push for localized supply chains, U.S. hop production is becoming more regionally diverse. Differentiation in geographies implies changes in growing climates and other environmental factors known to alter the flavor profiles of agricultural commodities used in food and drink. We use a chemical analysis, blind taste test, and choice experiment to identify whether the same hop cultivar grown in different regions induces a unique sensory profile in hops and beer. The chemical analysis and taste test provide evidence of hop terroir, while we find that brewers are willing to pay a premium for local hops.

Globalization transforms not just the economics of production and exchange in the world, but also the political economy of public policies. We analyze how wine regulations, and more specifically planting rights restrictions, have been affected by globalization, in particular colonial expansions of wine producing empires. We study several historic cases and find that (a) planting right restrictions and compulsory uprooting of vineyards are introduced to deal with falling wine prices as colonial wine production takes off and expands; (b) that enforcement of the restrictions and uprooting was difficult and often imperfect; and (c) that there was a strong persistence of the policies: after their introduction the restrictions remain in place for a long time (often centuries) and they are only removed after major shocks to the political economy equilibrium.

Unobserved quality challenges the empirical content of signaling theory, and often precludes the valuation of quality signals such as wine names. This paper uses the location of vineyard plots to control for unobserved wine quality when estimating the causal value of wine names on vineyard prices. The identification tackles unobserved spatial heterogeneity by newly combining a multi-cutoff spatial regression discontinuity design with plausibly exogenous name variations. We deal with standard requirements of causal inference – unconfoundedness and overlap – with instrumental variables and high-dimensional propensity models in a double robust framework. For the Burgundy region of France, we then recover the full causal signaling scheme of nested wine names with both a horizontal and a vertical dimension. This typical structure of names is monotone and complementary, as the names are consistently ordered within each dimension (rank preservation) and they present spillovers between them (umbrella effect). We find a high importance for unobserved wine quality, which produces heterogeneous signaling values.