Anchoring and Property Prices: The Influence of Echelle Des Crus Ratings on Land Sales in the Champagne Region of France

Although evidence for anchoring effects has been produced in experimental settings, there have been relatively few studies testing for anchoring in actual markets. We analyze a large data set of vineyard sales in the Champagne region of France to determine whether Echelle Des Crus (EDC) ratings are an anchor in the land market. The EDC is a set of numerical scores for villages in the region that was used as part of a price-setting system for wine grapes that began in 1919 and persisted until 1990. Although grape prices are now determined in a market and the EDC no longer plays a direct role in determining them, we test whether the EDC continues to be an anchor for participants in the land market. The econometric challenge is to separately identify anchoring effects from the effects of relevant information the EDC may convey about vineyard quality. We instrument for the EDC using the average attributes of vineyards in neighboring villages, which are unlikely to be correlated with errors in prices because only the characteristics of the vineyard itself affect the rents from grape production. We find strong evidence for anchoring effects in the land market, which is further supported by analyses of grape prices. We also examine whether the anchoring effect is diminishing over time as market participants come to rely more on objective information to determine prices. We find, instead, that effect of the EDC persists many years after it became obsolete.