Monday, June 30, 2008

The Beauty Contest of Wines, Endowments and Economics (fg)

How wonderful economics is! We really don't need to analyze financial, labor and aggregate goods markets. Just take one singular good, for example wine and try to figure out how to employ economic concepts to wine. Here we go: the economics of wine!

In its latest issue, the Economic Journal is devoted to a special feature on the economics of wine (I am afraid I cannot provide you with papers due to copy right protection). When checking the quaility of wine it is possible to combine quaility wine measures with tools of economics to create a wine rating system using a formula based strictly on two variables: temperature and rainfall. Utilising years of weather data, the author of the article in the Economic Journal concludes that dry, warm weather produces the best wines. So forget about exogenous factors like natural endowments, including terroir, the effects on wine quality are negligible. However, technological choices like grape varieties may indeed matter.

Finally, if you want to invest in wine, you may be well advised to listen to Rober Parker, one of the most influential wine taster, you have to go with Keynes' beauty contest. To put it in Richard Baldwin words:
Fine advice if you’re aiming for value-for-money in your cellar. Making money requires a different approach. Predicting a beauty contest winner is not, as Keynes famously opined, a matter of judging beauty but rather judging the judges judgment on beauty. When it comes to Bordeaux, the judge-in-chief is Robert Parker.
I'll keep you updated if there are news on the economics of wine!