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How big is the “lemons” problem? Historical evidence from French wines

Author

Listed:
  • Pierre Mérel

    (UC Davis - University of California [Davis] - UC - University of California)

  • Ariel Ortiz-Bobea

    (Cornell University [New York])

  • Emmanuel Paroissien

    (ALISS - Alimentation et sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract
This paper provides empirical evidence on the welfare losses associated with asymmetric information about product quality in a competitive market. When consumers cannot observe product characteristics at the time of purchase, atomistic producers have no incentive to supply costly quality. We compare wine prices across administrative districts around the enactment of historic regulations aimed at certifying the quality of more than 250 French appellation wines to identify welfare losses from asymmetric information. We estimate that these losses amount to more than 7% of total market value, suggesting an important role for credible certification schemes.

Suggested Citation

  • Pierre Mérel & Ariel Ortiz-Bobea & Emmanuel Paroissien, 2021. "How big is the “lemons” problem? Historical evidence from French wines," Post-Print hal-04148936, HAL.
    • Handle: RePEc:hal:journl:hal-04148936
    DOI: 10.1016/j.euroecorev.2021.103824
    Note: View the original document on HAL open archive server: https://hal.science/hal-04148936
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    Cited by:

    1. Catherine Haeck & Giulia Meloni & Johan Swinnen, 2019. "The Value of Terroir: A Historical Analysis of the Bordeaux and Champagne Geographical Indications," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 41(4), pages 598-619, December.
    2. Raj Chandra & Gabriel E. Lade & GianCarlo Moschini, 2021. "Geographical Indications and Welfare: Evidence from the US Wine Market," Center for Agricultural and Rural Development (CARD) Publications 21-wp628, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    3. Cristina Vaquero Piñeiro & Daniele Curzi, 2024. "Assessing the role of geographical indications in affecting the quality of imports," Journal of Agricultural Economics, Wiley Blackwell, vol. 75(2), pages 653-671, June.
    4. Stranieri, Stefanella & Orsi, Luigi & De Noni, Ivan & Olper, Alessandro, 2023. "Geographical Indications and Innovation: Evidence from EU regions," Food Policy, Elsevier, vol. 116(C).
    5. Jason A. Winfree, 2023. "Collective reputation and food," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 45(2), pages 666-683, June.
    6. Lin, Wen & Ma, Baojie & Liang, Jiangyuan & Jin, Shaosheng, 2024. "Price response to government disclosure of food safety information in developing markets," Food Policy, Elsevier, vol. 123(C).

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    More about this item

    Keywords

    Asymmetric information; Adverse selection; Quality uncertainty; Welfare; Wine appellation;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • N54 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries - - - Europe: 1913-
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy

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