Hedonic Wine Price Functions and Measurement Error
Charles Sturt U. Economics Working Paper No. 24
28 Pages Posted: 16 Apr 2001
Date Written: November 2000
Accumulated theoretical and empirical evidence suggests that wine prices depend upon quality, reputation and objective characteristics. Unlike previous studies, we recognize that quality and reputation are latent constructs and therefore employ factor analysis and 2SLS techniques to consistently estimate hedonic prices in the presence of attributes measured with error. The application to Australian premium wines points to significant reputation effects but insignificant quality effects. It is also illustrated that inappropriately using standard OLS procedures can seriously distort the statistical significance of attributes; the implicit marginal attribute prices; and the predictions of 'average' prices for a given set of characteristics.
Keywords: wine, hedonic pricing, measurement error
JEL Classification: C52, D40, L66
Suggested Citation: Suggested Citation