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

Author

Listed:
  • 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.

Suggested Citation

  • Evens SALIES, 2004. "The consumption of ordinary wines in France : the effect of administered prices," Econometrics 0406003, University Library of Munich, Germany.
    • 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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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices

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