A subfield, a drink or both?: Wine economics
“He brings up wine a lot,” said Dat Nguyen ’13, a student in Ashenfelter’s course ECO 331: Economics of the Labor Market.
“He tells lots of stories about the economics of various wineries in New Jersey,” James Kwan ’14 added.
Ashenfelter is referred to by his colleagues as “the father of wine economics,” though the subfield isn’t crystal clear. The eminent wine economist explained that the subject uses a traditional economic approach to investigate an untraditional topic.
“It’s really the application of economic tools to issues that are particularly easy to study and of prominent interest in the wine world — in the manufacture, distribution and consumption of wine,” Ashenfelter said.
Ashenfelter introduced his theories on wine economics around 1986 when he launched a newsletter called “Liquid Assets — The International Guide to Fine Wines.” The newsletter was dedicated to the quantitative analysis of the fine-wine market and was the first of its kind.
Ashenfelter was interested in whether one could predict the quality of a wine from a given vineyard objectively based on the weather. It turned out he could. He developed the Ashenfelter Theorem, also known as the Bordeaux Equation, which measures winter rainfall and growing-season temperatures. This equation helps him determine the quality of wine in terms of auction sale prices annually.
Though wine critics, namely Robert M. Parker Jr., have slammed the equation and Ashenfelter’s research in the past as “ludicrous and absurd,” Ashenfelter stands by his work, believing that “expert opinion is highly overrated.”
“What’s a good wine and a bad wine?” Ashenfelter asked. “Can an expert tell by tasting or smelling or whatever if it’s any better? There’s a lot of evidence that they can’t.”
Ashenfelter noted many blind tasting sessions in which an expert would unknowingly sample the same wine twice and critique it in different ways. Likewise, several critics often give the same bottle of wine a different rating.
Karl Storchmann, an economics professor at New York University and the managing editor of “Journal of Wine Economics,” also criticized the subjectivity of wine criticisms in his paper titled “Wine Economics.” Storchmann said that so-called “wine words” — words frequently used by wine critics such as “austere,” “precocious,” “backward,” “dumb” and “unctuous” — do not convey meaning.
“There are all these words that you can read that say ‘Oh, this wine tastes like honeysuckle and blah, blah, blah,’ and for that you pay more. We would like to know, does wine really have that taste?” Storchmann said. “I think you have to be critical. You shouldn’t trust what you read or hear in blogs. Trust yourself and not the ‘experts.’ ”
Ashenfelter argued that wine critics — and, more broadly, those who develop rankings on a variety of topics — can often be detrimental to the economy.
“Many people attribute the recent financial crisis to the failure of the rating agencies,” he explained. “These rating agencies were raising the ratings of companies days before they collapsed.”
He added that “it’s a shame” that some of the objective elements of wine economics cannot be extended to the overall study of the economy.
Yet the wine industry has a subfield distinction in economics, economics professor Henry Farber said.
“There’s something about wine that captures peoples’ imaginations,” Farber explained. “The taste of wine is so subjective that people can argue it forever.”
And it will likely be argued forever, both objectively and subjectively. At the most recent meeting of the American Association of Wine Economists in Princeton, Ashenfelter said, members blindly taste-tested a variety of wines from New Jersey and Paris and were surprised to discover that the New Jersey wines performed well. Despite the fame and higher price of the wines from Paris, the high ratings for the New Jersey wines proved how difficult it is to find good wine.
“My rule of thumb is you should always try the best local product. Don’t be a snot about it … You have to see what the local people can produce,” Ashenfelter noted.
That rule has paid off for him. Ashenfelter has sampled countless bottles of wine and, though he admits to making some mistakes with wine choices, “I could say that I like them all … I like the experimentation of it,” he said.
When forced to pick his favorite, though, he admitted that he is really fond of wine from Alsace, a region in France, because it is known for tasting just like the grape it comes from.
Thanks to its subjectivity, the study of wine economics is a growing field, and Ashenfelter believes it will continue to grow. “I’m surprised it’s as big as it is,” he said. “Who’d ever think it would be a field, for heaven’s sake?”
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