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How Big is the “Lemons” Problem? Historical Evidence from French Wines

Author

Listed:
  • Mérel, Pierre
  • Ortiz-Bobea, Ariel
  • Paroissien, Emmanuel

Abstract

This paper provides empirical evidence of large welfare losses associated with asymmetric information about product quality in a competitive market. When consumers cannot observe product characteristics at the time of purchase, atomistic producers have no incentive to supply costly quality. We compare wine prices across administrative districts around the enactment of historic regulations aimed at certifying the quality of more than 250 French appellation wines to identify welfare losses from asymmetric information. We estimate that these losses represent up to 13% of total market value, suggesting an important role for credible certification schemes.

Suggested Citation

  • Mérel, Pierre & Ortiz-Bobea, Ariel & Paroissien, Emmanuel, 2020. "How Big is the “Lemons” Problem? Historical Evidence from French Wines," Working Papers 302485, Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2).
    • Handle: RePEc:ags:inrasl:302485
    DOI: 10.22004/ag.econ.302485
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    Cited by:

    1. Elina De Simone & Mara Giua & Cristina Vaquero-Piñeiro, 2024. "Eat, visit, love. World heritage list and geographical indications: Joint acknowledgement and consistency as drivers of tourism attractiveness in Italy," Tourism Economics, , vol. 30(6), pages 1531-1556, September.
    2. Jason A. Winfree, 2023. "Collective reputation and food," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 45(2), pages 666-683, June.
    3. Lin, Wen & Ma, Baojie & Liang, Jiangyuan & Jin, Shaosheng, 2024. "Price response to government disclosure of food safety information in developing markets," Food Policy, Elsevier, vol. 123(C).
    4. Raj Chandra & Gabriel E. Lade & GianCarlo Moschini, 2021. "Geographical Indications and Welfare: Evidence from the US Wine Market," Center for Agricultural and Rural Development (CARD) Publications 21-wp628, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    5. Magdiel Pablo-Cano & Anastacio Espejel-García & Arturo Hernández-Montes & Landy Hernández-Rodríguez, 2024. "Consumers’ Willingness to Pay for Attributes of Sustainability, Origin and Production Process in Raicilla," Sustainability, MDPI, vol. 16(19), pages 1-13, October.
    6. Stranieri, Stefanella & Orsi, Luigi & De Noni, Ivan & Olper, Alessandro, 2023. "Geographical Indications and Innovation: Evidence from EU regions," Food Policy, Elsevier, vol. 116(C).
    7. Cristina Vaquero Piñeiro & Daniele Curzi, 2024. "Assessing the role of geographical indications in affecting the quality of imports," Journal of Agricultural Economics, Wiley Blackwell, vol. 75(2), pages 653-671, June.
    8. Catherine Haeck & Giulia Meloni & Johan Swinnen, 2019. "The Value of Terroir: A Historical Analysis of the Bordeaux and Champagne Geographical Indications," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 41(4), pages 598-619, December.
    9. Mara Giua & Luca Salvatici & Cristina Vaquero-Piñeiro & Roberto Solazzo, 2025. "Do Territories with Geographical Indications Trade Better?," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 11(1), pages 31-64, March.

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    Keywords

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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • N54 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries - - - Europe: 1913-
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy

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