Introduction to the Issue
(FULL TEXT PDF)
Karl Storchmann
This issue of the Journal of Wine Economics opens with “Convergence in National Alcohol Consumption Patterns: New Global Indicators” by Alexander Holmes and Kym Anderson (Holmes and Anderson, 2017). The authors draw on data for all countries of the world since 1961 and introduce two new summary indicators to capture additional dimensions of the convergence in total alcohol consumption and its mix of beverages. They also consider unrecorded alcohol consumption and whether alcohol consumption focuses on wine, beer or spirits. Some selected results are: Alcohol consumption, volume as well as expenditure, first grows with per capita income to a certain point and falls thereafter. In volume terms, the inverse U-shaped link to incomes applies to all three beverages. In value terms, only spirits follow this pattern. “When countries are grouped by geographic region, all three beverage consumption volume intensity indexes converged toward unity for North America and Eastern Europe, but they diverged for Western Europe and Africa/Middle East. The consumption mix similarity indexes moved closer to one during 2001 to 2015 for most regional country groups, and also for beer-focused and spirits-focused countries – but not for wine-focused countries and only barely for Western Europe.” Olena Sambucci and Julian Alston estimate the value of California wine grapes (Sambucci and Alston, 2017). They show that the total grape crush value reported in USDA/NASS California Grape Crush Reports, the authoritative source of infor- mation on production and returns, may underestimate the value of the total crush by as much as 14–20%, depending on the year. Since the crush prices are directly observed only for those wine grapes that are sold, not for those used in winemaking by the grower, the Grape Crush Reports partially rely on estimated prices. Sambucci and Alston show that these estimates are downward biased and suggest a small change in procedure that would provide more accurate estimates. In a paper entitled “Wine, Women, Men, and Type-II Error,” Jeffrey Bodington examines whether there is a statistically meaningful difference between women and men in wine tasting (Bodington, 2017). Since state fairs and other wine compe- titions typically pool the scores of female and male judges, the existence of idiosyn- cratic differences would yield a bias in the overall score. Drawing on data from 23 wine tastings Bodington finds little to no statistical difference in gender-specific scores. “The potential for accept-a-false-null-hypothesis Type II error when pooling female and male judges’ wine-related opinions appears to be small.”
Joseph Breeden and Sisi Liang analyze “Auction price dynamics for fine wines from age-period-cohort models” (Breeden and Liang, 2017). In order to identify the main determinants of fine wine prices Breeden and Liang apply an age-period-cohort algorithm (APC) to a database of 1.5 million wine auction results. APC algorithms are designed to separate price appreciation with the age of the wine from overall wine market conditions as well as adjusting for the unique value of specific vintages. Here, the APC modeling resembles the hedonic method with specific controls regarding specification errors. Breeden and Liang examine the “Lafite Bubble,” nonlinear rela- tionships between wine ratings and prices, and show the wide price dispersion among auction houses. This issue of the Journal of Wine Economics closes with a comparison of three dif- ferent ranking methods in wine tasting by Jing Cao and Lynne Stokes (Cao and Stokes, 2017). Based on the simulated data, the authors compare three ranking methods: (1) score average, (2) rank average (Borda count), and (3) Shapley ranking where a judge only needs to say whether or not he/she likes the wine (Ginsburgh and Zang, 2012). The comparison is based on two criteria. The first one is the squared-error loss, which calculates the sum of squared differences between the estimated ranks and the true ranks. The other is called the percentile loss, which only considers whether the wines are correctly put into a certain subset. The authors summarize their findings as follows, “ranking based on score average in general is more accurate than the one based on rank average. Shapley ranking, if taken into consideration that it puts less burden on judges in wine tasting, may outperform the other methods in certain conditions.”
Karl Storchmann
New York University
Convergence in National Alcohol Consumption Patterns-New Global Indicators
(FULL TEXT PDF)
Alexander J. Holmes & Kym Anderson
With increasing globalisation and interactions between cultures, countries are converging in many ways, including in their consumption patterns. The extent to which this has been the case in alcohol consumption has been the subject of previous studies, but those studies have been limited in scope to a specific region or group of high-income countries or to just one or two types of alcohol. The present study updates earlier findings, covers all countries of the world since 1961, and introduces two new summary indicators to capture additional dimensions of the extent of convergence in total alcohol consumption and in its mix of bever- ages. It also distinguishes countries according to whether their alcoholic focus was on wine, beer, or spirits in the early 1960s as well as their geographic regions and their real per- capita incomes. For recent years, we add expenditure data and compare alcohol with soft drink retail expenditure, and we show the difference it makes when unrecorded alcohol volumes are included as part of total alcohol consumption. The final section summarizes our findings and suggests that further research could provide new demand elasticity estimates and use econometrics to explain the varying extents of convergence over time, space, and bev- erage type. (JEL Classifications: D12, L66, N10)
Estimating the Value of California Wine Grapes
Olena Sambucci & Julian M. Alston
The California Grape Crush Report (Crush Report) is an authoritative source of information on production and returns per ton by variety of wine grapes that includes summaries of quan- tities produced and estimates of the average prices and value of wine grapes crushed in California. The data provided in the Crush Report are used to calculate the total value of wine grape production as reported in the annual Agricultural Statistics reports published by the U.S. Department of Agriculture and in major industry publications. We use the differences among crush districts in the shares of production crushed to growers’ accounts to show that the current mechanism of calculating average statewide returns per ton understates the true total value of the crush by 14 to 20 percent. We show that a more accurate estimate of the total value and average price can be obtained if the prices of the wine grapes that are sold are used to infer the prices of wine grapes that are not sold before computing the weighted averages. (JEL Classifications: Q20, Q11, Q13, Q19)
Wine, Women, Men, and Type II Error
Jeffrey C. Bodington
More than forty published works show that women and men differ in their taste preferences for sweet, salt, sour, bitter, fruit, and other flavors. Despite those differences, dozens of state fair and other wine competitions determine winners’ ribbons, medals, scores, and ranks by pooling the opinions of female and male judges. This article examines twenty-three blind wine tastings during which female and male judges scored more than nine hundred wines. Two-sample t-test results show that the gender-specific distributions of scores do have similar means and stan- dard deviations. Exact p-values for two-sample chi-square tests show that the distributions of men’s and women’s scores are not significantly different, and exact p-values for likelihood ratio tests of Plackett-Luce model results show that the genders’ preference orders are not sig- nificantly different. The correlation coefficient between women’s and men’s scores is weakly positive in 90 percent of the tastings. On that evidence, indications that the genders prefer dif- ferent wines are difficult to detect. If such differences do exist, as the nonwine literature implies, the results of this analysis show that those differences are small compared to non-gender-related idiosyncratic differences between individuals and random expressions of preference. The poten- tial for accept-a-false-null-hypothesis Type II error when pooling female and male judges’ wine- related opinions appears to be small. (JEL Classifications: A10, C10, C00, C12, D12)
Auction-Price Dynamics for Fine Wines from Age-Period-Cohort Models
Joseph L. Breeden and Sisi Liang
In an attempt to expand the understanding of auction-price dynamics for fine wines, an age-period-cohort (APC) algorithm is applied to a database of 1.5 million auction results to quantify key drivers of these price dynamics. APC algorithms are designed to separate price appreciation with the age of the wine from overall wine-market conditions as well as to adjust for the unique value of specific vintages. In this context, the APC modeling provides a kind of Hedonic modeling, with specific controls regarding specification errors.
The analysis was segmented by Château Lafite Rothschild, Bordeaux excluding Lafite, and Burgundy so that we could test specific events related to Château Lafite Rothschild. The results show price dynamics versus the ages of the wines and allow for the measurement of long-term price-appreciation potential. Environment functions versus auction dates quantify the “Lafite Bubble” and suggest past correlation to Chinese stock-market indices. An analysis of wine ratings versus price quantifies their nonlinear relationship. An analysis across nine auction houses shows a significant price spread for similar wines. (JEL Classifications: C23, D44, G11, G12, Q11)
Comparison of Different Ranking Methods in Wine Tasting
Jing Cao and Lynne Stokes
In this paper, we compare three ranking methods in wine tasting in terms of their respective accuracy levels. The first two are the original-score average and rank average, which are con- ventional methods in practice. The third is a relatively new ranking method called Shapley ranking. It is a game-theory-based ranking method, whereby judges are required not to rank order or score all the wines but only to choose a subset that they find meritorious. A sim- ulation study is designed, wherein the data-generating scheme mimics how the real wine- tasting data are produced. We also consider two criteria in the comparison: the squared- error loss, which is a suitable measure when accurate ranking of all wines is of interest; and the percentile loss, which only considers whether the wines are correctly put in a certain subset. The main conclusion from our study is that the ranking based on score average is gen- erally more accurate than that based on rank average. Shapley ranking, with the consideration that it puts less burden on judges in wine tasting, may outperform the other methods in certain conditions. (JEL Classifications: C11, C15, D72, D81)
Book Review
XABIER ITÇAINA, ANTOINE ROGER & ANDY SMITH
Varietals of Capitalism-A Political Economy of the Changing Wine Industry
Reviewed by Kevin Goldberg
Pages 211 – 213
Book Review
PATRICK COMISKEY
American Rhône-How Maverick Winemakers Changed the Way Americans Drink
Reviewed by Tim Elliott and Philippe LeMay-Boucher
Pages 213 – 215
Book Review
HUGH JOHNSON
Hugh Johnson on Wine-Good Bits from 55 Years of Scribbling
Reviewed by Neal D. Hulkower
Pages 215 – 218