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Eco-Labeling Strategies: The Eco-Premium Puzzle In The Wine Industry

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Author Info
Delmas, Magali A.
Grant, Laura E.

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Abstract

Eco-labeling signals that a product has been eco-certified. While there is increasing use of eco-labeling practices, there is still little understanding of the conditions under which eco-labels can command price premiums. In this paper, we argue that the certification of environmental practices by a third party should be analyzed as a strategy distinct from although related to the advertisement of the eco-certification through a label posted on the product. By assessing eco-labeling and eco-certification strategies separately, we are able to identify benefits associated with the certification process independently from those associated with the actual label. More specifically, we argue in the context of the wine industry that eco-certification can provide benefits, such as improved reputation in the industry or increased product quality, which can lead to a price premium without the need to use the eco-label. We estimate this price premium of wine due to the eco-certification of grapes using 13,400 observations of wine price, quality rating, varietals, vintage, and number of bottles produced, for the period 1998-2005. Overall, certifying wine increases the price by 13%, yet including an eco-label reduces the price by 20%. This result confirms the negative connotation associated by consumers with organic wine. The price premium of this luxury good due to certification acts independently from its label, a confounding result not previously demonstrated by related literature.

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Publisher Info
Paper provided by American Association of Wine Economists in its series Working Papers with number 37325.

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Date of creation: Mar 2008
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Handle: RePEc:ags:aawewp:37325

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Web page: http://www.wine-economics.org
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Related research
Keywords: organic wine; wine market; price premium; eco-wine; Demand and Price Analysis; Environmental Economics and Policy;

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References listed on IDEAS
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  1. Cason, Timothy N. & Gangadharan, Lata, 2002. "Environmental Labeling and Incomplete Consumer Information in Laboratory Markets," Journal of Environmental Economics and Management, Elsevier, vol. 43(1), pages 113-134, January. [Downloadable!] (restricted)
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  2. Combris, Pierre & Lecocq, Sebastien & Visser, Michael, 1997. "Estimation for a Hedonic Price Equation for Bordeaux Wine: Does Quality Matter?," Economic Journal, Royal Economic Society, vol. 107(441), pages 390-402, March. [Downloadable!] (restricted)
  3. Loureiro, Maria L., 2003. "Rethinking new wines: implications of local and environmentally friendly labels," Food Policy, Elsevier, vol. 28(5-6), pages 547-560. [Downloadable!] (restricted)
  4. Huang, Chung L, 1996. "Consumer Preferences and Attitudes towards Organically Grown Produce," European Review of Agricultural Economics, Oxford University Press for the Foundation for the European Review of Agricultural Economics, vol. 23(3), pages 331-42.
  5. Blamey, R. K. & Bennett, J. W. & Louviere, J. J. & Morrison, M. D. & Rolfe, J., 2000. "A test of policy labels in environmental choice modelling studies," Ecological Economics, Elsevier, vol. 32(2), pages 269-286, February. [Downloadable!] (restricted)
  6. Magali Delmas & Maria Montes-Sancho & Jay P. Shimshack, 2007. "Information Disclosure Policies: Evidence from the Electricity Industry," Discussion Papers Series, Department of Economics, Tufts University 0707, Department of Economics, Tufts University. [Downloadable!]
  7. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb.. [Downloadable!] (restricted)
  8. Ginger Zhe Jin & Phillip Leslie, 2003. "The Effect Of Information On Product Quality: Evidence From Restaurant Hygiene Grade Cards," The Quarterly Journal of Economics, MIT Press, vol. 118(2), pages 409-451, May. [Downloadable!] (restricted)
  9. Matthew J. Kotchen, 2006. "Green Markets and Private Provision of Public Goods," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 816-845, August. [Downloadable!] (restricted)
  10. Loureiro, Maria L. & Lotade, Justus, 2005. "Do fair trade and eco-labels in coffee wake up the consumer conscience?," Ecological Economics, Elsevier, vol. 53(1), pages 129-138, April. [Downloadable!] (restricted)
  11. Oczkowski, Edward, 1994. "A Hedonic Price Function For Australian Premium Table Wine," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 38(01), April. [Downloadable!]
  12. Lisette Ibanez & Gilles Grolleau, 2008. "Can Ecolabeling Schemes Preserve the Environment?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 40(2), pages 233-249, June. [Downloadable!] (restricted)
  13. Oczkowski, Edward, 2001. "Hedonic Wine Price Functions and Measurement Error," The Economic Record, The Economic Society of Australia, vol. 77(239), pages 374-82, December. [Downloadable!] (restricted)
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