AAWE, Economics Dept, New York University, 19 W 4th St, 6Fl., New York NY 10012aawe@wine-economics.org

AAWE Working Paper No. 10

 

Identifying the Effect of Unobserved Quality and Expert Reviews in the Pricing of Experience Goods: Empirical Application on Bordeaux Wine 

Pierre Dubois and Céline Nauges 

Abstract

We propose a structural empirical approach ä la Levinsohn and Petrin (2003) to disentangle the effect of experts’ grades from the effect of unobserved quality on the pricing of experience goods. Using a panel data set of 108 chäteaux seiring wine on the Bordeaux “en primeur” market, we providc somc empirical Validation for thc theoretical result that thc pricc set by wine producers is used as a Signal for wine quality. We confirm that experts’ grades affect producers’ choice of “en primeur” price above the effect of unobserved wine quality. Our empirical results also show that failing to control for endogeneity caused by the Omission of unobserved quality leads to over-estimate the influence of experts’ grades on the “primeur” price.

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