How Big is the ‘Lemons’ Problem? Historical Evidence from French Appellation Wines

• Agricultural Economics Workshop

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 economic surplus loss arising from the failure of a competitive market to supply quality in the presence of asymmetric information. When consumers cannot observe product characteristics at the time of purchase, incentives for atomistic producers to supply quality may be suppressed. We use variation in wine prices across administrative districts around the enactment of pioneering regulations aimed at resolving asymmetric information problems in the French wine market to identify related welfare losses. Difference-in-differences results indicate large potential losses from the quality-related market failure, suggesting an important role for credible certification schemes.