Economics Professor Karl Storchmann’s efforts successful

WALLA WALLA, Wash.— The second issue of the Journal of Wine Economics picks up where the inaugural edition left off, featuring the research of noted international scholars with specialties in the area of the economics of wine.

Initially published in May 2006, this first-of-its kind journal is a rich blend of the vision and efforts of Whitman economics professor Karl Storchmann, scholarly papers written by international economists and the support and funding of Whitman College. The fledging journal garnered the attention of wine, food, and business writers in the United States and Europe after being premiered at the international Vineyard Data Quantification Society’s annual May meeting in Bordeaux, France, to rave reviews.

Among the topics discussed in the Winter 2007 issue are: bargaining the price of champagne grapes, what weather does to wine prices in Bordeaux, inconsistencies in wine tasting and the California wine grape economy.

Below are synopses of the articles included in the current issue of the Journal of Wine Economics. For more information, go to

Content of Journal of Wine Economics, Vol. 1 (2006), No. 2

Growers vs. Merchants Bargaining on the Price of Champagne Grapes and the Role of Contracts when Bargaining is Unbalanced

Journal of Wine Economics, Vol. 1 (2006), No. 2, pp. 95-113
by Claire Chambolle (INRA Ivry-sur-Seine) and Olivier Saulpic (ESCP-EAP Paris)

The contract between growers and merchants for the exchange of grapes on the Champagne market is a long-term agreement based on quantities. Commitments on quantities are made for several years and negotiated individually between growers and merchants. Each year, prices are negotiated at the interprofessional level, the interprofessional committee including members of the growers union, members of the merchants union and a government commissioner. It turns out that industrial organization theory, and more precise mechanisms outlined by incomplete contract theory are relevant to the analysis of such contracts in which prices and quantities are negotiated sequentially and by different groups of actors. We show that imposed pricing by the interprofessional organization can, in some cases, balance the bargaining power between growers and merchants and thus increase social welfare. At a time when the European Common Organization of Wine Markets casts doubt on interprofessional organizations, this result tends to justify their positive role.

Spatial Variations in Weather Conditions and Wine Prices in Bordeaux

Journal of Wine Economics, Vol. 1 (2006), No. 2, pp. 114-124
by Sébastien Lecocq (INRA Ivry) and Michael Visser (Paris School of Economics)

The purpose of this paper is to study the impact of weather conditions on prices of Bordeaux wines. Unlike previous studies (based on data from the main weather station in Mérignac), we use climatological variables from many local stations. Two models are compared: one where prices are related to Mérignac weather conditions, and one where prices are related to local conditions (weather variables measured in the station the nearest to the château). Although a (non-nested) test suggests that the model based on local data is better, the two specifications lead to very similar results. This is reassuring news for researchers interested in the relationship between weather and prices, but who do not have access to spatial variations in climate.

The Paris 1976 Wine Tastings Revisited Once More: Comparing Ratings of Consistent and Inconsistent Tasters

Journal of Wine Economics, Vol. 1 (2006), No. 2, pp. 125-140
by Domenic V. Cicchetti (Yale University)

In the author’s earlier research, five quite reliable and six quite unreliable subsets of tasters were identified, from among the full sample of eleven wine tasters, at the heralded 1976 Paris blind Chardonnay and Bordeaux/Cabernets wine competitions. This study shows quite conclusively that the consistent tasters and the inconsistent ones provided quite different results when compared both to each other and to the results based upon the full sample of eleven tasters. Results demonstrate the following: one should be wary of findings based solely upon an omnibus approach (i.e., results based only on the full sample of 11 tasters); that a next logical step is not only to continue to identify consistent tasters, but to design future studies in which these reliable judges are used to teach neophyte imbibers to also achieve high levels of wine tasting consistency; and that in continuing to investigate other important empirically derived oenological information, we should not, in the process, lose sight of the sheer hedonic pleasure of the next glass of wine.

What Determines the Future Value of an Icon Wine?
New Evidence from Australia

Journal of Wine Economics, Vol. 1 (2006), No. 2, pp. 141-161
by Danielle Wood (Productivity Commission Melbourne) and Kym Anderson (University of Adelaide and World Bank)

To what extent can the future price of icon wines be anticipated from information available at the time of their initial sale by wineries? Using a seemingly unrelated regression model we show that weather variables and changes in production techniques, along with the age of the wine, have significant power in explaining the secondary market price variation across different vintages of each of three icon Australian red wines. The results have implications for winemakers in determining the prices they pay for grapes and charge for their wines, and for consumers/wine investors as a guide to the prospective quality of immature icon wines.

Price Formation in the California Winegrape Economy

Journal of Wine Economics, Vol. 1 (2006), No. 2, pp. 162-172
by Dale Heien (University of California, Davis)

This paper presents a theory of price determination for winegrapes in California. As the California wine economy developed, winegrape contracts took on a role as one of the centerpieces of this transformation. The theory is presented and it is shown how two important factors, weather and financial uncertainty, served to shape the contracts. Hence, long term planting contracts for new vineyards, specifying the price, helped ameliorate the uncertainty to growers. Similarly, shorter contracts played a similar role for established vintners. The model deals with two types of growers: those with contracts made well before the year in question and those who will sign a contract in the Spring of the year of harvest. This paper hopes to illuminate these elements and their interaction. The model is then empirically estimated and tested.

Tales from the Crypt: Auctioneer Bruce Kaiser Tells Us about the Trials and Tribulations of a Wine Judge

Journal of Wine Economics, Vol. 1 (2006), No. 2, pp. 173-175
Interviewed by Orley Ashenfelter (Princeton University)

I’ve often wondered how a wine like the Renaissance 1985 cabernet sauvignon could be sold to investors (like the Wine Exchange of California, which was finally shut down by the Federal Trade Commission) who ought to know better. The answer may be: “wine judges” and “wine competitors.” The Renaissance 1985, which was barely drinkable (and unsaleable) according to former Bonham and Butterfield’s auctioneer Bruce Kaiser, actually won a “gold medal” at a fair in California. How could this happen? To find out we interviewed Kaiser not long after he had been a wine judge at the San Francisco Fair.

Price and Quality in the California Wine Industry: An Empirical Investigation

Journal of Wine Economics, Vol. 1 (2006), No. 2, pp. 176-190
by Tony Lima (California State University, East Bay)

Each year California wineries spend thousands of dollars entering tasting competitions. Are they getting their money’s worth? In this article, Tony Lima examines the results of nine tasting competitions from 1995. His statistical analysis shows that wines winning a medal at the San Francisco competition have prices $3.65 per bottle higher than those winning medals at other competitions. Winning a medal at the California State Fair (Sacramento) and the Orange County fair also led to significantly higher prices. Lima argues that consumers value the information produced by these tasting events. One way they learn about a wine’s medals is shelf tags in wine shops.

These results generally hold for four of the five major wine varietals including cabernet sauvignon, chardonnay, merlot and zinfandel. However pinot noir was unusual because the three tastings that were valued most highly were from San Francisco, the California State Fair and the Dallas (Texas) Morning News competition. For example, in one case Lima estimates that winning a medal in Dallas raised the average price of a bottle of pinot noir by $3.46.


CONTACT: Lenel Parish, Whitman College News Service, (509) 527-5156