Category: economic thinking

The Price and Quality of Wine, 2014

The makers of the Vivino app, which allows wine lovers to rate and share reviews of wines, produced their Top 100 lists for 2014. According to their website, over 13 million users rated over 3 million wines. Based on those reviews, they produced lists of the Top 100 reds, whites, sparkling wines, and “Under $50” wines. The lists included the average price reported by their users (another feature included in the app). Naturally, I thought it would be interesting to see how well prices correlated with the quality rankings.

I started with the Under $50 category because, seriously, if I’m going to buy a bottle of wine it’s going to be under $50 unless I’m hosting a Nobel Laureate wine connoisseur, or I’m out for dinner at a nice restaurant on someone else’s dime. Besides, there are WAY too many good wines under $50 to spend more than that for most purposes. Using the ranking score (from 1 to 100), the reported prices have a positive correlation, as one would expect (higher ranked wines have higher prices; lower ranked wines have lower prices), but it’s a pretty weak relationship (0.2075).* This suggests that while a higher price wine may be higher quality, don’t count on it. That ought to make you feel better about grabbing that less expensive bottle for your neighbor’s New Year’s party. The average price of wines on the list was $35.03, which is still higher than you might buy for an evening at home, but the cheapest wine was just $11 (Wild Rock’s The Infamous Goose Sauvignon Blanc Marlborough 2013 at #97) and only one wine hit the $50 cap (Pago De Carraovejas‘ Ribera del Duero Crianza Tinto 2009 at #31).

I was going to stop there, but decided to look at the Top 100 red wines as well. Since there was no cap on the prices, one might expect some very expensive, highly rated wines to push the expected correlation. However, it’s quite the opposite. The correlation coefficient between rank and price is a mere 0.0528, which means virtually NO relationship between quality ranking and price. Of course, the standard deviation was much larger relative to the average price (std dev = 803.5; average = $549.30) than it was for the lower priced wines (std dev = 10.53, average = $35.03). The highest priced wine on the list was $5,455 (yes, that’s right, Pétrus’ Pomerol 1982 at #36) while the lowest was just $81 (Concha y Toro’s Don Melchor Cabernet Sauvignon 2009 at #82). So if you’re looking at wines in the $100+ range, there is a good chance that relative prices tell you next-to-nothing about the quality in the bottle.

One thing that may affect the weaker relationship is the context in which the most expensive wines are likely purchased. I would suspect a good percentage of these were purchased in restaurants, where mark-ups can be quite high and varied across establishments. And one wouldn’t expect a large number of the highest priced wines to be purchased, even among the 13 million Vivino users, so there may a good deal of variance in reported prices and quality that is masked in the reporting of averages. Perhaps the good people at Vivino would be willing to share more of the data for a more thorough analysis.

I opted not to take the time to do the exercise for the Top Whites or Top Sparkling Wines. For one, I generally prefer reds. I would hypothesize that the correlation is probably just as low for the whites and sparkling, but I suspect the variance in price would be lower for each of those than for the reds, since reds are generally better for aging and therefore may have some appreciated (or potential) time value built-in that the whites may not. If you decide to check it out for yourself, please post a follow-up in the comments!

So you want to make sure you’re getting a good bottle of wine at a good price? Crowd-sourcing quality using apps like Vivino (or Untappd for craft brews) is likely a much more reliable source than just relying on price. Of course, a knowledgeable friend or local wine seller wouldn’t hurt either.

* Note: I edited the post to make the correlations more intuitive (higher quality, higher price positive correlations) rather than the negative numbers that resulted from the actual ordinal rank score. I also added in the names of mentioned wines along with a link to the wine’s profile on Vivino.com).

Food Access and Food Policy

Ploeg, Dutko and Breneman have a new paper coming out in Applied Economic Perspectives & Policy taking to task the way food access and “food desserts” are measured and the implications of those challenges for policy design.

They provide a good description of the ways in which food access is measured and some of the data sources used for developing those measures. Most of these have to do with measuring things like income, distance to stores, availability of transportation, etc.; measuring retail food availability versus healthy food availability; a tendency to focus only on low-income neighborhoods; and defining what is means to say access is “adequate” or “inadequate” from a policy perspective.

One of the things they do not mention, which I have been thinking about recently as a potential research project, is the extent to which food access measures correlate with health outcomes in a community. This is closely related to work Diogo Souza Monteiro at Newcastle University has begun looking at the kinds of grocery stores in UK neighborhoods and the incidence of various public health outcomes.

Focusing on health outcomes would go well beyond the critique of the tendency to focus on low-income neighborhoods, since even in communities where food access is (relatively) good or where incomes are on average higher, there could be differing health outcomes associated with the types and numbers of food retailers available. Just because a healthy food option is readily available does not mean local health will necessarily be better. And after all, a significant reason for caring about food access is not for the sake of access to food itself, but for the (public) health consequences of limited food access. So the existence of a correlation between health outcomes (or types of health outcomes) and measures of food access and food security would seem a necessary first step in designing any potential policies to address the food access problem.

That said, Ploeg, Dutko and Breneman’s paper seems a good starting point for thinking more clearly about food access and food policy. Unfortunately, I think the paper is gated. The abstract follows.

Policymakers have dedicated increasing attention to whether Americans have access to healthful food. As a result, various methods for measuring food store access at the national level have been developed to identify areas that lack access. However, these methods face definitional, data, and methodological limitations. The focus on neighborhoods instead of individuals underestimates the barriers that some individuals face in accessing healthy food, and overestimates the problem in other neighborhoods. This paper reviews and critiques currently available national-level measures of food access. While multiple measures of food access are needed to understand the problem, we recommend greater attention be paid to individual measures of food store access.

The Coase Theorem In Action

When transaction costs are sufficiently low, private market transactions work very well for reallocating property rights to their highest valued use. That’s the basic idea of the notion George Stigler popularized as “the Coase Theorem”. Looks like US Bank not only recognizes it, but sees themselves as lowering transaction costs with their app. (HT Greg Mankiw)

When Consumers Speak

I spent the past week teaching managerial economics in a new masters of agribusiness and entrepreneurship program at Agricultural University-Plovdiv. It was a good opportunity to reinforce (or in some cases introduce) an understanding of property rights and of the role of markets not just to coordinate resources but to elicit, reveal and transmit knowledge throughout the economy. (It was also somewhat apropos that the class ended on the 25th anniversary of the fall of the Berlin wall, and Nov 10 is Bulgaria’s anniversary of the end of Communist control.)

One of the issues we discussed was the sensitivity of many Bulgarians (and Europeans in general) to things like genetically modified organisms (GMOs) in the food supply and the use of antibiotics and growth-stimulating hormones in meat and dairy. We discussed differences in attitudes between consumers in the US (in general) and in Europe, and differences among consumers in the US. We discussed alternate ways of responding to those sensitivities–whether government-imposed regulations or privately-organized initiatives in response to consumer demands. So news this week from the US provided two very timely examples. Continue reading “When Consumers Speak”

Bridging The Gap To Feed A Growing World

That’s the title of the public lecture I’ll give tomorrow (3 Nov) at Agricultural University in Plovdiv, Bulgaria. The talk is part of a ceremony celebrating the beginning of a new Master’s program in Agribusiness Management and Entrepreneurship that AU is starting in collaboration with the Ag & Applied Economics Department at the University of Missouri.

The basic idea of the talk is that feeding 9.6 billion people by 2050 (the UN’s current projection) will require more than just improvements in agricultural production technologies and practices. As it is now, an abundance of food is wasted globally each year, even as millions suffer from malnutrition. So the solution has to be about more than just growing more food.

Much of the waste results from poor political and market institutions globally. These problems can only be addressed by better understanding how markets work and how policy and regulation affects market workings; and by encouraging innovation not only in production technologies, but in value chain structures that deliver more and better food that people want to where they are. This new masters program is intended to help equip leaders in Bulgarian agriculture to do just that.

After the ceremonies, I’ll be teaching the first of four courses in the program being taught be faculty from Missouri over the next 14 months.

If you happen to be in Plovdiv, you’re welcome to drop in for the public lecture.

Law & Econ of Consumer Protection

Today and tomorrow I’m participating in a workshop on consumer protection at the George Mason Law & Economics Center (LEC). The line up includes some interesting speakers, including Howard Beales, James Cooper, and TOTM co-blogger Paul Rubin.

The workshop is part of a Privacy Fellows program the LEC is organizing this year, involving scholars from a range of disciplines, to stimulate research related to issues of data privacy and the regulation of data collection and use. This is an area in which there is relatively little work.

And in other “consumer protection” news, Michigan’s governor opted to bow to the traditional auto industry cronies and signed anti-Tesla legislation into law. One could say it’s just one more step in a decades-long string of anti-consumer protections of a politically powerful industry.

Crony capitalism wins again; consumers and innovators be damned.

The Economics of Jimmy John's "Freaky" Non-compete Clause

Jimmy John’s, the national sub-sandwich company known for being “freaky good, freaky fast,” has been in the news for being rather freaky about having employees sign non-compete clauses as part of their standard labor agreements.

Non-compete clauses are not uncommon for senior executives, technology professionals, or professionals whose business is built on client relationships, like lawyers or sales representatives. And although an article in the New York Times this summer highlights how non-compete clauses are increasingly appearing in unexpected places, one certainly wouldn’t expect such an agreement as a condition of employment at a sandwich shop–unless maybe it was to protect the time-warp technology for their freak fast delivery.

There’s just one problem with the hype in the media around this issue: most of it is ignoring some important facts that call into question just how big a deal this is, except as a media stunt for some disgruntled employees. For example: Continue reading “The Economics of Jimmy John's "Freaky" Non-compete Clause”