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How Big is the “Lemons” Problem? Historical Evidence from French Wines

Author

Listed:
  • Mérel, Pierre
  • Ortiz-Bobea, Ariel
  • Paroissien, Emmanuel
Abstract
This paper provides empirical evidence of large 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 represent up to 13% of total market value, suggesting an important role for credible certification schemes.

Suggested Citation

  • Mérel, Pierre & Ortiz-Bobea, Ariel & Paroissien, Emmanuel, 2020. "How Big is the “Lemons” Problem? Historical Evidence from French Wines," Working Papers 302485, Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2).
    • Handle: RePEc:ags:inrasl:302485
    DOI: 10.22004/ag.econ.302485
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    Cited by:

    1. 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.
    2. Jason A. Winfree, 2023. "Collective reputation and food," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 45(2), pages 666-683, June.
    3. Stranieri, Stefanella & Orsi, Luigi & De Noni, Ivan & Olper, Alessandro, 2023. "Geographical Indications and Innovation: Evidence from EU regions," Food Policy, Elsevier, vol. 116(C).
    4. 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).
    5. 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.
    6. 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.

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    More about this item

    Keywords

    Crop Production/Industries; Food Consumption/Nutrition/Food Safety;

    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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