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

Pierre Mérel (), Ariel Ortiz-Bobea and Emmanuel Paroissien

No 20-05, Working Papers SMART from INRAE UMR SMART

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.

Keywords: asymmetric information; adverse selection; quality uncertainty; welfare; wine appellation (search for similar items in EconPapers)
JEL-codes: D82 N54 Q18 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2020
New Economics Papers: this item is included in nep-agr, nep-com and nep-his
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Citations: View citations in EconPapers (1)

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https://ageconsearch.umn.edu/record/302485 (application/pdf)

Related works:
Journal Article: How big is the “lemons” problem? Historical evidence from French wines (2021)
Working Paper: How Big is the “Lemons” Problem? Historical Evidence from French Wines (2021)
Working Paper: How big is the “lemons” problem? Historical evidence from French wines (2021)
Working Paper: How Big is the “Lemons” Problem? Historical Evidence from French Wines (2020)
Working Paper: How Big is the “Lemons” Problem? Historical Evidence from French Wines (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:rae:wpaper:202005

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