Economics of Wine Quality

Experimental Analysis of Willingness to Pay for Attributes of Value-Added Agricultural Goods: Integration of Economics and Sensory Science

Christopher Gustafson
Daniel Sumner 
Travis Lybbert
Julian Alston
Hildegarde Heymann

This research will (1) investigate, experimentally, consumer willingness to pay for agricultural value-added products differentiated by geographic origin and other attributes, (2) examine econometric estimates of hedonic pricing models using experimental economics to obviate estimation and identification problems, and (3) evaluate the effect of market experience on consumer valuation of product attributes.

Producers are increasingly using geographic origin as a means to differentiate and add value to their products. We examine the wine market in our experiments because geographic indicators have a long history of use, but vary in age and renown; product differentiation is important; and because product information is particularly important in the market. Furthermore, there have been many hedonic studies of wine pricing and a well developed wine sensory science literature.

We will implement two experimental strategies. First, we will conduct experimental auctions combining sensory and objective information with several different groups of participants with different levels of experience and formal training in a controlled sensory laboratory setting. Second, we will conduct field experiments of purchase decisions in a retail environment.

This strategy—using a valuation experiment—will offer subjects alternatives to their selected item and evaluate their willingness to pay for the alternatives. The results will help us better identify demand-side factors, by eliminating supply-side influences, and the importance of consumer information for differentiated, value-added products