Identifying the Effects of Objective and Subjective Quality on Wine Prices

Abstract

This study examines a framework developed by Cardebat, Figuet, and Paroissien in a 2014 Journal of Wine Economics article for identifying the impacts of both objective and subjective quality on wine prices. We recognize how various specifications are observationally equivalent and that the interpretation of model estimates depends crucially on the posited assumption for the relation between price and objective and subjective quality. The proposed framework is applied to Australian premium wines. Results indicate that the price impact of expert personal opinions is similar to the impact of objective quality as estimated via weather, vintage, and producer fixed effects. The relative importance of objective quality compared with subjective quality depends crucially on the ability of expert scores to accurately reflect objective quality. (JEL Classifications: C21, Q11, Q54)

The relation between Australian wine show results and prices

“…Building upon the framework developed by Cardebat et al . (), Oczkowski () advocates the following framework to disentangle the relative impacts of objective and subjective (show) opinion on wine prices. where P is the (log) price; Q is objective wine quality; S is the show quality score; ԑ is the opinion of the show, defined as the difference between the show quality score S and objective quality Q; x represents additional price influencing regressors; w represents regressors which determine objective quality; ԑ and u are random error terms; and γ , θ , β , and α are parameters to be estimated.…”

“…In our model, it is important to recognise the difference between objective quality and the show score appears as the opinion regressor in Equation , rather than the show score itself. Including the show score directly in Equation effectively double‐counts the impact of objective quality on price, as objective quality appears as a separate regressor and is also part of the show score, see Oczkowski () for more details…”

“…As in Cardebat et al . () and Oczkowski (), we employ three sets of variables for determining objective quality ( w in Equation ): weather variables; time (vintage of wine); and fixed effects for the influence of producers. For weather, we use rainfall and temperature data as identified and employed in Oczkowski ().…”

“…() using scores from nine experts and wines from France, Spain, and the United States suggest that prices are determined more by the fundamentals than the opinions of experts. Oczkowski () employed the approach used in this paper for Halliday scores and wines available in 2014. Similar to our results, Oczkowski () also estimated approximately equal impacts of objective quality and Halliday's opinion on price.…”

Introduction to the Issue

“…In the third article of this issue, entitled "Identifying the Effects of Objective and Subjective Quality on Wine Prices," Edward Oczkowski analyzes the impacts of quality on wine prices (Oczkowski, 2016). He applies the framework proposed by Cardebat, Figuet, and Paroissien (2014) to Australian premium wines.…”