Projects Funded for Pierre Mérel

2014-2015

Can Public Institutions Resolve Information Asymmetries? Historical Evidence from the French Wine Market

Abstract

Specific Objectives of the Project

The objective of this project is to empirically investigate the role of public certification schemes in resolving information asymmetries in vertically quality-differentiated markets, using the French wine market as a case study.

When quality-differentiated products are sold by informed sellers to uninformed buyers, bad products may drive out good products from the market, resulting in an inefficient equilibrium where only low-quality products are sold. Although a potential for mutually beneficial trade in high-quality varieties exists, such potential is not realized because discriminative buyers cannot be certain of the quality of the goods they are purchasing. Certification schemes aimed at reducing information asymmetries between sellers and buyers can theoretically remediate the lemons problem.

We wish to test this hypothesis in the context of wine production in France over the course of the twentieth century. More specifically, we will investigate the extent to which a series of laws enacted throughout the first half of the twentieth century to reduce information asymmetries regarding the origin and quality of wines and spirits (in 1905, 1919, 1927, but most importantly in 1935) can be related to the emergence of a strong high-quality wine market. Our hypothesis is that the enactment of the 1935 law, which essentially codified the use of wine geographical denominations, allowed a segmented high-quality market for fine wines to emerge, resulting in higher welfare and higher market value for wine products in general.

We will use department-level data on wine acreage, production, and value, from 1925 to 1955 to test the hypothesis that the 1935 law fundamentally altered market structure and led to an increase in market value through product differentiation (leading to a separating equilibrium).

Project Report/Summary of Results

We have encountered delays in obtaining the data and are finalizing our data entry process (from paper yearbooks). We have managed to get out data without spending the funds. Some additional yearbooks have been released by the French statistical office (INSEE) during the past year, while others were obtained from the Cornell library and the UC Berkeley library.

2011-2012

Economic Viability and Environmental Consequences of Adopting Switchgrass as a Biofuel Feedstock in the Central Valley of California

2009-2010

Food Quality and Cooperatives: Positioning California Cooperatives to Succeed in Contemporary Food Markets

2008-2009

Biofuel Crops Adoption for California: Economic and Environmental Impacts

Abstract

This study assesses the economic viability and implications for water and cropland allocations of adopting switchgrass in the Central Valley of California. It adapts the approach of Positive Mathematical Programming (PMP) to construct amulti-region, multi-input and multi-crop model of agricultural supply. The model is calibrated against both observed input allocations and the exogenous supply price elasticities. For each of the regions, the model derives the supply curve of switchgrass thereby indicating the extent and location of potential switchgrass production in California. The study finds that the regions in or near the Southern San Joaquin Valley corresponding to counties of Fresno, Kings, Tulare and the cluster of regions at the frontier of the Sacrament and San Joaquin Valley appear to be the early and dominant adopters. Sensitivity analyses show that the findings are quite robust to a range of reasonable changes in the underlying technological assumptions regarding both switchgrass and existing crops.