UC Davis Agricultural and Resource Economics

Pierre Mérel, University of California, Davis

The Efficiency Costs of a 'Lemons' Market: Evidence from French Appellation Wines, 1907-1969

Date and Location

Thursday, November 8, 2018, 4:10 PM - 5:30 PM
ARE Conference Room, 2102 Social Sciences and Humanities

Abstract

This paper provides an empirical measure of the consumer surplus loss arising from the failure of a market to supply quality in the presence of asymmetric information. When consumers cannot directly observe product characteristics, for instance in the presence of credence attributes, incentives for producers to supply quality may be suppressed. We exploit quasi-random variation in the timing of pioneering regulations aimed at resolving asymmetric information in the French wine market starting in the late 1930s to identify related welfare losses. Results indicate large losses from the quality-related market failure, suggesting an important role for credible certification schemes.

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