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The consumption of ordinary wines in France : the effect of administered prices

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  • Evens SALIES

    (University of Perpignan & of Paris 1 - Panthéon Sorbonne)

Abstract

Since 1970 nearly all-Mediterranean countries of the EC had undertaken measures to regulate their domestic market for ordinary wines, in the context of constant fall in domestic demand for that product. This paper provides an empirical modelling framework for understanding the effect on the domestic demand for ordinary wines of the orientation price policy in the case of France. The result of a static demand co- integrating equation is compared with those obtained from alternative distributed lag and dynamic versions. It is shown that a non-static specification can result from a consideration of the effects in the short-run on demand responses of the price orientation mechanism. A restricted version of the static equation is tested for constancy using the Hansen's test of parameter instability. We reject parameter stability, which confirms the trend followed by the series of ordinary wines over the sample period and supports the use of alternative specification for the demand equation. Across specifications, demand for ordinary wines is well explained by own-price changes, the price of juice and expenditures, especially in the short run. We also find evidence of habit persistence and a significant difference between unobserved and actual farm to retail spreads. A structural parameter associated to the degree of influence of the price support policy is estimated. Its statistical significance leads to the main conclusion that in the short run the presence of price regulation reduces demand responses after a change in the retail prices of ordinary wines.

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Bibliographic Info

Paper provided by EconWPA in its series Econometrics with number 0406003.

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Length: 27 pages
Date of creation: 05 Jun 2004
Date of revision:
Handle: RePEc:wpa:wuwpem:0406003

Note: Type of Document - doc; pages: 27. A Rats programme for the Hansen's L_c statistics is available from the author upon request.
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Web page: http://128.118.178.162

Related research

Keywords: common agricultural policy; wine market; structural change; co-integration;

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References

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  1. Nerlove, Marc, 1995. "Hedonic price functions and the measurement of preferences: The case of Swedish wine consumers," European Economic Review, Elsevier, vol. 39(9), pages 1697-1716, December.
  2. Labys, Walter C., 1976. "An International Comparison Of Price And Income Elasticities For Wine Consumption," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 20(01), April.
  3. Masih, Rumi & Masih, Abul M. M., 2000. "A Reassessment of Long-Run Elasticities of Japanese Import Demand," Journal of Policy Modeling, Elsevier, vol. 22(5), pages 625-639, September.
  4. Baltagi, Badi H & Griffin, James M, 1995. "A Dynamic Demand Model for Liquor: The Case for Pooling," The Review of Economics and Statistics, MIT Press, vol. 77(3), pages 545-54, August.
  5. Hansen, Bruce E, 1992. "Tests for Parameter Instability in Regressions with I(1) Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 321-35, July.
  6. Lariviere, Eric & Larue, Bruno & Chalfant, Jim, 2000. "Modeling the demand for alcoholic beverages and advertising specifications," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 22(2), March.
  7. Johnson, James A, et al, 1992. "Short-Run and Long-Run Elasticities for Canadian Consumption of Alcoholic Beverages: An Error-Correction Mechanism/Cointegration Approach," The Review of Economics and Statistics, MIT Press, vol. 74(1), pages 64-74, February.
  8. Lariviere, Eric & Larue, Bruno & Chalfant, Jim, 2000. "Modeling the demand for alcoholic beverages and advertising specifications," Agricultural Economics, Blackwell, vol. 22(2), pages 147-162, March.
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