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Red wines of Médoc: What is wine testing worth ?

Listed author(s):
  • GINSBURGH, Victor

    (Université Libre de Bruxelles and CORE, Université catholique de Louvain, B-1348 Louvain-la-Neuve, Belgium)

  • MONZAK, M.

    (Université Libre de Bruxelles)

Winemaking is a highly complex technology. It needs inputs over which there is no control (good weather conditions), initial endowments which can hardly be modified (soil, exposure of the slopes), inputs which take 20 to 30 years before producing good quality outputs (vines), manual operations (picking), mechanical operations (rushing, racking) and chemical processes (during fermentation). In the paper, we disentangle the production technology, and try to quantify the impact on prices (qualities) of each of the many inputs (including weather conditions) and steps used in producing wine in Médoc. We show that technology and weather conditions are able to explain two thirds of the variance of prices; when reputation effects (based on the wine classification made in 1855) are included, this proportion rises to almost 85%. This suggests either that "classified" producers are able to charge higher prices, or that the classification is a measure of quality reflected by prices. We also show that two of the more recent attempts at classifying wines are not as good in explaining prices than the official (and old) 1855 grading.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 1992027.

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Date of creation: 01 Apr 1992
Handle: RePEc:cor:louvco:1992027
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  1. GERGAUD, Oliver & GINSBURGH, Victor, "undated". "Natural endowments, production technologies and the quality of wines in Bordeaux. Does terroir matter?," CORE Discussion Papers RP 2025, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Landon, Stuart & Smith, Constance, 1998. "Quality expectations, reputation, and price," MPRA Paper 9774, University Library of Munich, Germany.
  3. Robin Cross & Andrew J. Plantinga & Robert N. Stavins, 2011. "The Value of Terroir: Hedonic Estimation of Vineyard Sale Prices," NBER Working Papers 16762, National Bureau of Economic Research, Inc.
  4. Ashenfelter, Orley, 1989. "How Auctions Work for Wine and Art," Journal of Economic Perspectives, American Economic Association, vol. 3(3), pages 23-36, Summer.
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