Wine Economics

Jamie Oliver Feed me Better: School Meals and Educational Outcomes

2009-12-31T00:51:00Z

December 30, 2009, by Karl Storchmann (Journal of Wine Economics)

The American Association of Wine Economists also deals with food and in our Working Paper series we just published an interesting paper entitled Healthy School Meals and Educational Outcomes by Michèl Belot (Oxford University) and Jonathan James (University of Essex). In a nutshell, the paper concludes that better school food not only reduces excused absenteeism but also improves proimary school stduents' performance in English and Science in the UK.

The story begins with a campaign called “Feed me Better” launched by popular English chef Jamie Olivier back in 2004 in order to reduce obesity rates among school kids. The campaign is aimed at banning junk food from school canteens “and get the kids to eat fresh, tasty, nutritious food instead.” (see Jamie Oliver’s Manifesto). Oliver envisions a ten-year plan that gets all participants involved, school officials, teachers, parents, pupils and "dinner ladies." With public support the program was implemented in the school district of Greenwich (London, UK) in 2004/2005.

Here are some typical school food examples:

Before the change:
Mains: burgers and chips; sausage rolls; fish fingers; turkey drummers; chicken dinosaurs
Desserts: sponge pudding and custard; milk shake and home made biscuit; fruit salad

After the change

(more at www.greenwich.gov.uk/NR/rdonlyres/6578E5F0-86BB-40ED-AA42-60E1DE039CA9/0/SampleWeeklyMenu.pdf)

Belot and James take advantage of the fact that the changes were implemented in the district of Greenwich (“treated district”) only and compare student absentee days and academic performance of “treated” primary school students with those in five surrounding school districts “(non-treated district”). They employ a difference-in-differences model for the years 2002 to2007 (due to its transitional character, the year 2005 was left out).

Main findings: “Our estimates show that the campaign increased the percentage of pupils reaching level 4 by 4.5 percentage points in English, and the percentage of pupils reaching level 5 by 6 percentage points in Science. We also find that authorised absences (which are likely to be linked to sickness) drop by 15% on average. These effects are particularly noteworthy since they only capture direct and relatively short-term effects of improvement in children’s diet on educational achievements.”

Does this sound too good to be true? In their paper the authors discuss potential shortcomings that theoretically could have biased their results.

(1) Self selection: “Mobility across LEAs [Local Education Authorities] could introduce a selection problem and bias our estimates, for example if those children who move towards healthier schools are relatively better pupils in terms of educational performance and presence at school.Unfortunately, we do not have data on the number of applications to primary schools, but one indication of possible selection effects is the mean IDACI score – the mean socio-economic index. Figure 2 [see the original Working Paper] shows the IDACI score remaining constant over the analysis period suggest that the composition of the households of Greenwich schools, and our treatment schools remained constant.”

(2) Placebo effect: One concern is that the campaign affected educational outcomes not through the improvement in diet, but simply through a“placebo-effect”. Indeed, the schools were very well aware they were part of a pilot experiment and the campaign received a lot of media attention. Thus, we should worry that the effect we measure is a placebo effect rather than an actual effect of the campaign.”

However “On the other hand, the [media] attention was very much focused on the health benefits, and in particular on tackling the problem of obesity, rather than improving school performance. Also, we are looking at outcomes more than a year after the campaign and have excluded the year of the campaign itself. It is hard to believe that schoolchildren would remain motivated by a placebo effect more than a year after the campaign has been implemented.”

Biased Wine Reviews? Dr. Reuter's Response to Wine Spectator's Comments

2009-12-19T23:35:00Z

December 19, 2009, by Jonathan Reuter (Boston College)

Following the lead paper of the upcoming issue of the Journal of Wine Economics, Does Advertising Bias Product Reviews? An Analysis of Wine Ratings by Jonathan Reuter (see our original blog entry), and the response by Wine Spectator, I received the following comments by Jonathan Reuter:

Before responding to Mr. Matthews' statement on wine-econ.org, I would like to say a few words about my paper. I wrote it back in 2002, as part of my PhD dissertation,because I thought that wine ratings were an interesting (if not terribly important) setting in which to think about the influence of advertising relationships on media content. Using data that were largely hand collected by me, I made an honest effort to estimate and interpret the relation between wine ratings and measures of advertising. Once I'd answered the question to my satisfaction, I turned my attention to other research projects. When Karl Storchmann learned about the paper,many years later, he asked me to submit it to the Journal of Wine Economics,where it was peer reviewed. Below, I offer a few comments.

First, despite Mr. Matthews claim in one of his comments, I do not "convict" the Wine Spectator of anything. As I clearly state in the abstract, "I find that advertisers earn just less than one point higher Wine Spectator ratings than non-advertisers when I use Wine Advocate ratings to adjust for differences in quality. However, I find only weak evidence that the selective retasting of advertisers’ wines contributes to the higher ratings. Moreover, conditional on published ratings, Wine Spectator is no more likely to bestow awards upon advertisers. I conclude that while advertising may influence ratings on the margin, Wine Spectator appears largely to insulate reviewers from the influence of advertisers." In other words, despite the statistical evidence of a difference in ratings, based on Wine Spectator's use of blind tastings, and the preponderance of my empirical evidence, I conclude that the level of pro-advertiser bias is small to none. Given the conspiracy theories I’ve heard from fellow wine lovers, I expected Wine Spectator to be less defensive about my findings.

Second, to reiterate something Karl Storchmann wrote, whether advertisers earn the same ratings, on average, as non-advertisers tells us little about whether advertisers earn higher ratings from Wine Spectator (WS) than they deserve given the quality of their wines. To test for pro-advertiser bias, one needs to control for quality. My tests for differences in ratings assume that Wine Advocate (WA) ratings are noisy, but unbiased measures of quality. Given this assumption, I find that WS ratings are approximately one point higher for advertisers than I would have predicted given the published (and missing) WA ratings. To be clear, within the sample of wines rated by both WA and WS, the difference is less than half a point. However, the fraction of advertisers wines for which WA does not publish a rating is slightly higher than I would predict given the published WS ratings. Using a variant of a well-worn statistical technique, I find that removing one point from the ratings of advertisers' wines essentially explains away the difference in the fraction of advertisers wines for which WA does not publish a rating. I freely acknowledge that if I had access to unpublished WA ratings, I would have been able to conduct more powerful statistical tests, using a less-opaque-to-non-academics method. This is not say, however, that my empirical analysis is flawed.

Third, Mr. Matthews is correct to point out that the "just less than one point" difference can be interpreted in a variety of ways. I explicitly acknowledge this point in the paper when I consider the possibility that WS ratings reflect the tastes of WS reviews, WA ratings reflect the tastes of WA reviewers, and wineries are more likely to advertise in WS if they makes wines that appeal to WS reviewers. There is nothing sinister about this alternative interpretation, except that it calls into question, for example, the idea that Robert Parker and James Laube rate California wines using the same criteria.

Fourth, Mr. Matthews raises the possibility that WA is biased against the wines of WS advertisers. In particular, Mr. Matthews conjectures that WA ratings, because they are not always the result of blind tastings, may be more highly correlated with price than are WS ratings. This is a testable hypothesis. However, within the set of wines rated by both WA and WS, I find the correlation between ratings and price to be quite similar across the two publications. (The correlation between WA rating and the price reported in WS is 0.5461, the correlation between WS rating and the price reported in WS is 0.5710, and the difference between these correlations is neither statistically nor economically significant.) Another possibility, I suppose, is that some advertisers submit better-than-average bottles for review by Wine Spectator. But I have no idea if this is even feasible.

Finally, Matthews writes, "Perhaps Mr. Reuter is simply crunching the numbers beyond their breaking point." The fact that wines are rated 80, 81, 82, etc. does not rule out the possibility that some types of wines are consistently rated 1.0, 0.5, or 0.1 points higher than other types of wines. While it is true that small sample sizes generate noisy estimates, it is not true that they prevent valid statistical inference. Of course, if Wine Spectator would like to provide me with more comprehensive data on ratings, tasting notes (so that I can determine which wines were retasted), awards, composition of the WS Top 100, and advertising expenditures, I'm happy to gather other ratings and crunch the numbers again. Heck, I'm even happy to approach Wine Advocate about getting access to its published and unpublished ratings. Mr. Matthews' has my email address.

Biased Wine Reviews? A Response from Wine Spectator

2009-12-11T13:26:00Z

December 11, 2009, by Karl Storchmann (Journal of Wine Economics)

In response to the publication of the lead paper of the upcoming issue of the Journal of Wine Economics, Does Advertising Bias Product Reviews? An Analysis of Wine Ratings by Jonathan Reuter (see our original blog entry), I received the following statement from Thomas Matthews, Executive Editor of the Wine Spectator:

A Response from Wine Spectator

Wine Spectator states categorically that our reviews are not biased in favor of advertisers. In fact, our advertisers frequently complain about their ratings.And most of the highest-rated wineries have no budget for advertising. It’s a no-win world!

At Wine Spectator, every review of a newly-released wine is the result of a blind tasting, where neither producer nor price is known by the taster. This approach gives every wine a fair and equal chance to show its best, and guarantees that no bias can influence the scores. No other wine publication makes this claim.

Over the years, skeptics have searched for evidence of bias in Wine Spectator ratings. No such evidence has ever been found.

For example, in 2004, an independent organization called Wine Angels released a series of reports based on their analysis of five years of Wine Spectator ratings (nearly 60,000 reviews). They directly compared the average scores of advertisers versus non-advertisers. The Wine Angels study concludes: It does not appear that advertised brands received higher average scores than non-advertised brands." ("Wine Spectator Magazine: Wine Brand Advertising and Performance in 2003" First Edition Copyright © 2004 by Wine Angels www.wineangels.com)

Jonathan Reuter’s paper analyzes 713 U.S. wines that were rated by both Wine Spectator and Wine Advocate in the year 2000. He computes and compares the average scores earned by Wine Spectator advertisers and non-advertisers in each publication.

Here are his comparisons (including average score):

WS advertisers = 87.50/ WS non-advertisers = 87.58

WA advertisers = 88.15/ WA non-advertisers = 88.65

I would like to make two points about this data. First, advertised wines actually received lower scores from Wine Spectator than non-advertised wines.Second, advertised wines actually received higher scores from Wine Advocate than from Wine Spectator.

Nonetheless, Mr. Reuter asserts that Wine Spectator scores are biased. However, this conclusion depends on his assumption that Wine Advocate scores are not biased. But since he has no proof of the latter, why should anyone accept his claim of the former?

A better explanation of the disparity in scores may be that Wine Advocate is biased in favor of higher-priced wines. (Since WA does not always taste blind,it is possible that the taster knows the price of the bottle when it is scored.)

I suspect this bias may exist based on the data Mr. Reuter presents relating price and score in both publications. For all wines, with an average price of $36.93 per bottle, the WA average score is 1.00 point higher than the WS average score. For wines that average $37.16 per bottle(non-advertisers), the WA average score is actually 1.07 points higher than the WS average score. In other words, a higher price results in a greater increase in score from WA than it does from WS.

Or, it may be thatneither publication’s scores are biased. After all, Reuter’s analysis dependson calculating ratings to two decimal places. While Wine Spectator believesthat the 100-point scale can accurately reflect the judgments of an informedtaster, we don’t insist scores are valid to the hundredth of a point. PerhapsMr. Reuter is simply crunching the numbers beyond their breaking point. (added by Thomas Matthews after original posting)

In the end, Mr. Reuter comes to the same basic conclusion that Wine Angels did. He writes, “I conclude that while advertising may influence ratings on the margin, Wine Spectator appears largely to insulate reviewers from the influence of advertisers."

In the real world, wine lovers will make their own determinations whether Wine Spectator, or any other critic, has the expertise and integrity to be a credible guide to the complex and fascinating world of wine.

Founded in 1976, Wine Spectator has become the most widely-read wine publication in the world, according to independent research, with more than 2.4 million readers in the U.S. (MRI, Fall 2009) and more than 3 million worldwide. That success results from the credibility Wine Spectator has earned from readers, which, in turn, stems from their belief in the publication’s expertise and integrity.

The expertise is embodied in a team of senior editors who have been writing about wine for a cumulative total of more than 150 years. The integrity rests on our Code of Ethics and our tasting methodology (both posted in detail on our Website, Wine Spectator.com). At Wine Spectator, we will continue to uphold the highest standards of truth and fairness, and to work diligently to avoid any bias or conflicts of interest. That is our pledge to our readers, and to ourselves.

Respectfully,

Thomas Matthews

Executive editor

Wine Spectator

Are Wine Spectator reviews biased towards advertising wineries?

2009-12-10T02:49:00Z

December 10, 2009, by Karl Storchmann (Journal of Wine Economics)

Are Wine Spectator points biased towards wineries that advertise with them?

This is the topic of a paper by Jonathan Reuter of Boston College entitled "Does Advertising Bias Product Reviews. An Analysis of Wine Ratings." This paper began its life as Reuter's economics PhD thesis at M.I.T and a revised version will be published in the upcoming issue of the Journal of Wine Economics (JWE, Vol.4, No. 2).

There are two questions here:
First, are Wine Spectator reviews biased? Second, who cares?

Let us begin with the latter question.

There are numerous economic papers that confirm the influence of critical points on the wine price. Wineries want to receive awards, medals or high critical ratings because they boost their reputation and will most likely allow to raise prices in the years to follow.

What is the money value of a Wine Spectator point? Or better, what is the value of getting one more point? First, the effect is probably not linear. An increase from 90 to 91points may be worth more than a jump from 80 to 81. Good, then we can simply regress a wine’s price on last year’s ratings using a non-linear specification or use different point brackets. That is what Jonathan Reuter did in his PhD thesis (this part is not published in the JWE). Result: an increase from 90 to 91 Wine Spectator points will increase next year’s bottle price by up to $5.84 (in $2000). But things are more complicated. A wine that is highly rated by Wine Spectator is probably also highly rated by other wine critics, e.g., by Robert Parker in his Wine Advocate.That is, simply regressing a wine’s price on last year’s Wine Spectator rating yields a biased price effect. Not the entire price effect is due to Wine Spectator alone. Therefore, Reuter controls for the wine’s quality by including Wine Advocate’s ratings. As a result, Wine Spectator’s price effect dropped to $3.45. But still, if a winery produces 5,000 cases of a 90-point wine, one more point would be worth about $200,000 in future revenues. Thus, one Wine Spectator point more or less can make a big difference.

Back to the first question. Is Wine Spectator biased towards its advertisers? In his analysis, Reuter exploits the fact that of the two major wine publications, namely Wine Spectator and Wine Advocate, only Wine Spectator accepts advertising. In fact, within his sample, about 10% of all wines reviewed by Wine Spectator advertise in it. In contrast, Wine Advocate does not accept advertisements and is entirely subscriber-supported.

In a first comparison, Reuter compares the average Wine Spectator points of advertisers and non-advertisers and finds that advertisers earn even slightly less points. Of course, if one does not control for quality that is meaningless. However, when including Wine Advocate ratings as quality control the picture changes. “Controlling for (censored) Wine Advocate ratings, I find a positive (partial) correlation between Wine Spectator ratings and lagged advertising intensity. The implication is that Wine Spectator ratings of advertisers’ wines are approximately one point higher than their ratings of comparable wines from non-advertisers.”

If Wine Spectator tastings are blind (and we do not doubt they are), why should the ratings be biased towards advertisers? Reuter examines several possibilities.

Possibility 1: Wine Advocate’s ratings are not unbiased.

Theoretically, this could have lead to Reuter’s results. But then Wine Advocate must exhibit a systematical bias against wineries that advertise in Wine Spectator. That seems to be far fetched.

Possibility 2: “Wine Spectator style” wines advertise in Wine Spectator because their wines are most likely to appeal to Wine Spectator readers.

Wineries that advertise in Wine Spectator tend to be large-production wineries. “ …while Wine Spectator may have a preference for reviewing large-production wines, it is not clear that large wineries should be more likely to produce wines whose qualities appeal to Wine Spectator’s reviewers.”

Possibility 3: Biased reviews could arise through selective retastings. As Wine Spectator states “We retaste all wines that score 70 points or less. We retaste many other wines to confirm impressions.” First, Reuter finds evidence that Wine Spectator is more likely to retaste an advertiser’s wine. Second, when controlling for retastings, Reuter finds that advertisers earn significantly higher ratings than non-advertisers. However, the number of retasted wines appears too small to explain a bias of one entire point.

What is the conclusion? “At worst, the tests for biased ratings suggest that Wine Spectator rates wines from advertisers almost one point higher than wines from non-advertisers. However, selective retastings can explain at most half of this bias…The remaining difference in ratings may simply reflect consistent differences in how the two publications [Wine Spectator and Wine Advocate, sic.] rate quality.” That is, a mix of Possibility 2 and Possibility 3.

Let us return to the 5,000 case wine. If selective retastings bias reviews by (at most) half a point --- that’s still (at most) a revenue boost of $100,000; probably more than the cost of advertising.

Reuter touches another question without analyzing it. Are advertisers more likely to be reviewed at all? For now, we can only speculate. But somebody will look into that. .....There are always plenty of research questions left.

Restaurant Reputation, Italian Wine Tourism: New Working Papers

2009-12-04T21:28:00Z

The American Association of Wine Economists (AAWE) just posted two new AAWE Working Papers on its website.
For free online access please click on the link provided below:

AAWE Working Paper No. 51 Economics
Expert Opinion and Cuisine Reputation in the Market for Restaurant Meals
James J. Fogarty

AAWE Working Paper No. 52 Business
From Wine Production to Wine Tourism Experience: the Case of Italy
Vincenzo Asero and Sebastiano Patti

For more free AAWE Working Papers check http://wine-economics.org/workingpapers/

2010 AAWE Conference: Call for Papers

2009-11-30T17:58:00Z

The American Association of Wine Economists (AAWE) will hold its 4th Annual Conference from June 25-28, 2010, at UC Davis in California.

The conference will be hosted by UC Davis and the Robert Mondavi Institute for Wine and Food Science. All economics and statistics papers related to wine and food are welcome.

Submit a 1000-word abstract by February 28, 2010 to jwe@whitman.edu

Details will be posted on our website at www.wine-economics.org

New AAWE Working Paper

2009-11-15T16:45:00Z

The American Association of Wine Economists (AAWE) just posted a new AAWE Working Paper on its website.
For free online access please click on the link provided below:

AAWE Working Paper No. 50 Economics
The Economics of Collective Reputation: Minimum Quality Standards, Vertical Differentiation and Optimal Group Size
Stefano Castriota and Marco Delmastro

For more free AAWE Working Papers check http://wine-economics.org/workingpapers/

A Hint of Hype, A Taste of Illusion

2009-11-14T20:01:00Z

Research published in the Journal of Wine Economics is featured in an article by Leonard Mlodinow in the 14 November 2009 Wall Street Journal. The first few paragraphs of the story are reprinted below. Click on this link to read the entire article.

Excerpt from the WSJ article:

Acting on an informant's tip, in June 1973, French tax inspectorsbarged into the offices of the 155-year-old Cruse et Fils Frères wineshippers. Eighteen men were eventually prosecuted by the Frenchgovernment, accused, among other things, of passing off humble winesfrom the Languedoc region as the noble and five-times-as-costly wine ofBordeaux. During the trial it came out that the Bordeaux wine merchantsregularly defrauded foreigners. One vat of wine considered extremelyinferior, for example, was labeled "Salable as Beaujolais toAmericans."

It was in this climate that in the 1970s a lawyer-turned-wine-criticnamed Robert M. Parker Jr. decided to aid consumers by assigning winesa grade on a 100-point scale. Today, critics like Mr. Parker exertenormous influence. The medals won at the 29 major U.S. winecompetitions medals are considered so influential that wineries spendwell over $1 million each year in entry fees. According to a 2001 studyof Bordeaux wines, a one-point bump in Robert Parker's wine ratingsaverages equates to a 7% increase in price, and the price differencecan be much greater at the high end.

Given the high price of wine and the enormous number of choices, asystem in which industry experts comb through the forest of wines,judge them, and offer consumers the meaningful shortcut of medals andratings makes sense.

But what if the successive judgments of the same wine, by the samewine expert, vary so widely that the ratings and medals on which winesbase their reputations are merely a powerful illusion? That is theconclusion reached in two recent papers in the Journal of WineEconomics.

Both articles were authored by the same man, a unique blend ofwinemaker, scientist and statistician. The unlikely revolutionary is asoft-spoken fellow named Robert Hodgson, a retired professor who taughtstatistics at Humboldt State University. Since 1976, Mr. Hodgson hasalso been the proprietor of Fieldbrook Winery, a small operation thatputs out about 10 wines each year, selling 1,500 cases

A few years ago, Mr. Hodgson began wondering how wines, such as hisown, can win a gold medal at one competition, and "end up in thepooper" at others. He decided to take a course in wine judging, and metG.M "Pooch" Pucilowski, chief judge at the California State Fair winecompetition, North America's oldest and most prestigious. Mr. Hodgsonjoined the Wine Competition's advisory board, and eventually "begged"to run a controlled scientific study of the tastings, conducted in thesame manner as the real-world tastings. The board agreed, but expectedthe results to be kept confidential. ...

Wine's Future: It's in the Bag [in the Box]

2009-11-07T22:17:00Z

By Mike Veseth, University of Puget Sound. Originally posted on The Wine Economist.

One of my favorite globalization books is The Box: How the Shipping Container Made the World Smaller and the World Economy Biggerby Marc Levinson. It is the story of how the invention of the standardshipping container (those 20-foot steel boxes you see on ships, railcars and truck beds) made international trade much cheaper, moreefficient and more secure. Now it looks like another kind of box isabout to shake up the wine world.

Cheap and Nasty

I’m talking about box wines or bag-in-box (theAustralians call them cask wines) that feature an airtight wine-filledplastic bladder inside a cardboard box. You use a built-in spigot toget to the wine. They can be found on the bottom shelf of the wine walland behind the bar and out of sight at your local restaurant. They comein several sizes — 3 liter and 5 liter containers are the most common.

Box wines have a bad reputation. They first appeared in the 1970sand were filled with generic bulk wines. They were one step down fromthe popular 1.5 liter “magnum” bottles of “Burgundy,” “Chabils” andthe notorious “Rhine” wine. Box wine was cheap, nasty stuff thatacquired a frequently deserved bad reputation.

[Re]-Thinking Inside the Box

It’s time to reconsider box wine. Screw caps had a bad reputation,too, until quite recently. We associated them with low grade swilluntil fine wines appeared under screw cap (the New Zealand producerswere in the vanguard) and we began to appreciate that that screw capshave many advantages. Now screw caps are actually associated with qualityfor some types of wine, especially youthful whites, and no one expectsto pay less or get less because of the screw-top closure.

The technology of box wine is very solid. The airtight bladder is aneutral container that is well suited to holding wine for relativelyshort periods of time. (Don’t cellar box wine — consume within a yearof production — check out the “drink by” date on the box.) The bladderand spigot do in fact protect the wine from oxygen in the short run, soit will last longer once opened (especially if the box is stored in thefridge) than similar leftover wine in bottles.

Bladdersare so good at the particular thing that they do that they have becomean industry standard technology for bulk imported wines, which areshipped in huge bladders inside steel shipping containers (big bag in big box) and then bottled in the import market. So you may already be drinking box wine and not know it.

The Box Also Rises

The most recent Nielsen retail wine sales figures (reported in the October 2009 issues of Wine Business Monthly)suggest that box wine sales are growing. Wine sold in 3, 4 and 5 litercontainers (most of it is box wine, I think) accounts for just under 10percent of US supermarket wine sales, according to the Nielsen data(compared to 65% for standard bottles with the remainder in 1.5 literand other formats). Sales are rising in this category, with 3 literpackages up 8.7% in the last year on a dollar basis, for example, and 5liter packages are up 9.3% by value.

The total market for box wines rises if we include on-premisessales. Recent data (see previous posts) indicate that box wines (servedto customers in carafes and by the glass) are strong sellers in casualdining establishments.

The rise of box wine is part of the trading down effect, clearly,since most box wines fall into the two price categories that areexperiencing the highest growth. Sales of wines that are less than $3per 750ml bottle equivalent have risen 7.1 percent according to Nielsenand by 10% for wines between $3 and $5.99. Supermarket sales of $20+wines, on the other hand, have fallen by 3.4%.

Nasty, Brutish and Short?

Does this mean that Americans have traded down all the way to thebottom, back to the nasty box wines of the 1970s? The answer,incredibly, is no. Or at least not necessarily, according to theOctober 15 issue of Wine Spectator. You can’t miss this issueon the newsstand — it features a cover story on “500 Values for $20 orLess” and includes a set of box wine reviews that make interestingreading.

Wine Spectator purchased 39 box wines in packages thatranged from 1 liter to 5 liters. Twenty seven wines were rated as“good” (a score of 80-84) and ten “very good” (85-89). The names of the2 wines that scored below 80 were not reported.

The top box wine, going by the rating numbers, is a white: Wine CubeCalifornia Chardonnay, which sells in Target Stores for $17 per 3 literbox, which is $4.25 per standard bottle equivalent. It earned a veryrespectable 88 points. Wine Cube is a partnership between Target and Trinchero, the maker of a wide range of wines including Sutter Home.

The best red wine (at 87 points) is the Black Box Cabernet SauvignonPaso Robles 2006, which costs $20 for 3 liters or $5 per standardbottle equivalent. Black Box is a widely distributed ConstellationBrands product.

Good and Cheap?

Some box wine, apparently, is both pretty good and pretty cheap. Perhaps just to show that they really do rate wines blind, Wine Spectator gavea pretty good 84-point score to a non-vintage Carlo Rossi CabernetSauvignon California “Reserve” wine. Five liters for $13, in case youare interested, That’s $1.97 per standard bottle equivalent.

How can decent wine be this cheap? One answer, of course, is thatyou can choose to make the wine itself less expensive by economizing inthe cellar in many ways (less oak or none at all for red wines, forexample). But to a considerable degree the box itself is responsiblefor the savings.

The bag in box container costs less than $1, according to the Wine Spectator article,which automatically saves $4 to $8 compared with a similar quantity ofwine in standard glass bottles and the box they come in. Shipping costsare also less since the boxes weigh much less than glass bottles forthe same quantity of wine and are less likely to be damaged intransit. There are environmental benefits too, especially in areaswhere glass bottle recycling is problematic because the sour economyhas undermined the market for recycled glass.

Is box wine the future of wine? No. The wine market is too complexto be dominated by any single trend. But with better wine in betterboxes (and with consumers embracing a more relaxed idea of wine) boxwine deserves to play a bigger role in the future of wine. Anothertriumph for The Box!

The Case Against Awards

2009-10-16T16:41:00Z

An article in The New Republic suggests that wine economics research is having an influence beyond the vineyard. "The Case Against Awards: Why the Wrong Person Always Wins" by Jonathan Chait draws upon Robert T. Hodgson's research as reported in the Journal of Wine Economics to illustrate why "best of" awards (and even certain Nobel Prizes) are inherently problematic.

In my field, we have something called the National Magazine Awards.Magazine writers tend to be both obsessed with who wins and convincedthe process is a pathetic joke. This isn’t just sour grapes, either.The last time The New Republic won a National Magazine Award,it was for publishing Betsy McCaughey’s infamous anti-Clintoncarescreed “No Exit,” which is probably the worst article in the history ofTNR. It’s as if the last American to win the Nobel Peace Prize wasTimothy McVeigh.
Are these cases unusually egregious? Perhaps. But they are notwildly out of character with how awards generally work. A recentstatistical analysis by Robert T. Hodgson, published in the Journal of Wine Economics(I kid you not), found that a wine that wins one competition is no morelikely to win another competition than any other wine. Which is to say,wine awards are handed out completely at random. If you listen to moviebuffs, they will tell you that the Academy Awards regularly commitunforgiveable sins of commission or omission. Look closely at any fieldthat gives out awards, and you will probably find that injustice ismore the rule than the exception.

Click on the link above to read the entire article.

Working Papers: Chilean FDI, Email in Italy and When Wine Comes to Supermarkets

2009-10-09T14:59:00Z

The American Association of Wine Economists (AAWE) just posted three new AAWE Working Papers.
For free online access please click on the links provided below:

AAWE Working Paper No. 46 Business
Innovation in the Chilean Wine Industry: The Impact of Foreign Direct Investments and Entrepreneurship on Competitiveness
Martin Kunc and Tomas G Bas

AAWE Working Paper No. 47 Business
The E-mail Responsiveness of Italian Wineries
Riccardo Vecchio

AAWE Working Paper No. 48 Economics
Introducing Wine Into Grocery Stores: Economic Implications and Transitional Issues
Bradley J. Rickard

More AAWE Working Papers can be accessed free of charge at http://www.wine-economics.org/workingpapers/

New Wine Economics Working Papers Available

2009-09-19T14:50:00Z

September 19, 2009 by Mike Veseth (University of Puget Sound and The Wine Economist).

The American Association of Wine Economists (AAWE) recently published four new AAWE Working Papers on its website.
For free online access please click on the links provided below:

AAWE Working Paper No. 42 Economics
Message on the Bottle: Colours and Shapes of Wine Labels
Luiz de Mello and Ricardo Pires
*
AAWE Working Paper No. 43 Business
Non-Conventional Viticulture as a Viable System: A Case Study in Italy
Antonella Vastola and Aysen Tanyeri- Abur
*
AAWE Working Paper No. 44 Business
The Value of Designations of Origin in Emilia-Romagna
Silvia Gatti
*
AAWE Working Paper No. 45 Economics
Grazing, Goods and Girth: Determinants and Effects
Daniel S. Hamermesh

New Issue of Journal of Wine Economics is out (Vol 4, No 1)

2009-09-02T18:06:00Z

September 2, 2009, by Karl Storchmann (Journal of Wine Economics)

Dear wine friends,

the latest issue of the Journal of Wine Economics (Vol. 4, No. 1) will be released tomorrow (see also www.wine-economics.org/journal).

The lead article is again by Robert T. Hodgson, who analyzes the reliability of Gold medals awarded at 13 California Wine Fairs. “An analysis of over 4000 wines entered in 13 U.S. wine competitions shows little concordance among the venues in awarding Gold medals. Of the 2,440 wines entered in more than three competitions, 47percent received Gold medals, but 84 percent of these same wines also received no award in another competition. Thus, many wines that are viewed as extraordinarily good at some competitions are viewed as below average at others. An analysis of the number of Gold medals received in multiple competitions indicates that the probability of winning a Gold medal at one competition is stochastically independent of the probability of receiving a Gold at another competition, indicating that winning a Gold medal is greatly influenced by chance alone.” The full article can be accessed free of charge at Abstract FullText (PDF).

This issue also contains a symposium of five papers edited by guest editor Jill McCluskey of Washington State University.

Below you will find the content of the current issue with links to abstracts. Members have online access to all papers (from Wednesday on). If you want to renew your membership or want to join the American Association of Wine Economists (AAWE) go to http://www.wine-economics.org/membership/. It is still $39 per year ($45 outside of the U.S.).

Best,

Karl Storchmann

Journal of Wine Economics

Vol. 4, No. 1

Articles

An Analysis of the Concordance Among 13 U.S. Wine Competitions
Pages 1-9
Robert T. Hodgson
Abstract FullText (PDF)

Consumer-Level Determinants of Wine Purchases in Canadian Restaurants
Pages 10-24
Leigh J. Maynard and Kelly Davidson
Abstract

Guest Editor Jill J. McCluskey
Symposium “Economic Forces Affecting International Wine Markets”
Guest Editor’s Introduction to Symposium
Pages 25-26
Jill J. McCluskey
FullText (PDF)

Wine Taxes, Production, Aging and Quality
Pages 27-45
Rachael E. Goodhue, Jeffrey T. LaFrance and Leo K. Simon
Abstract

Globalization, Superstars, and Reputation:Theory & Evidence from the Wine Industry
Pages 46-61
Michael Gibbs, Mikel Tapia and Frederic Warzynski
Abstract

Dynamic Analysis of Brand and Regional Reputation: The Case of Wine
Pages 62-80
Günter Schamel
Abstract

Willingness to Pay for Sensory Properties in Washington State Red Wines
Pages 81-93
Nan Yang, Jill J. McCluskey and Carolyn Ross
Abstract

Wine Markets in China: Assessing the Potential with Supermarket Survey Data
Pages 94-113
Hyunok Lee, Jikun Huang, Scott Rozelle and Daniel Sumner
Abstract

Book and Film Reviews

Cross Media, Dashi and Umami: The Heart of Japanese Cuisine
Pages 114-118
Reviewed by Peter Musolf
FullText (PDF)

Jonathan Nossiter (Director), Mondovino
Pages 119-121
Reviewed by Tony Lima and Norma Schroder
FullText (PDF)

Obituary

Pages 122-123
Dale Martin Heien
by Julian Alston
FullText (PDF)

Chateau Cash Flow: The Rise of House Brand Wine

2009-08-24T19:59:00Z

August 24, 2009 by Mike Veseth (University of Puget Sound and The Wine Economist). Originally posted on The Wine Economist on August 18, 2009.

Decanter.com reports that house brand wine sales are rising in Great Britain even as the overall market slumps.

Retailers are reporting impressive growth of own-label wines as cash-strapped customers look to rein in their spending.

A Datamonitor survey reports 41% of all grocery sales in the UK are now own-label, up from 38.2% in 2008, and wine sales are following the upward trend.

Supermarket retailer Sainsbury’s told decanter.com its own-label wines had grown at double the rate of its wine range this year. A spokeswoman said: ‘Last year we revamped our own-label packaging and we have put a lot of effort behind the range in store and in the media.’

House brands aren’t so important in the U.S. wine market [yet] but they may well be in the future. The best known U.S. house brand wines are Charles Shaw (a.k.a. Two Buck Chuck) at Trader Joe’s and Kirkland Signature at Costco. Big Box retailers Target and Wal-Mart have launched their own house brands in recent months and other retailer’s have commissioned discount brands (not yet closely associated with their names) in an attempt to get a grip on the trading-down market. Look for this trend to continue, especially if the economic downturn persists.

Chateau Cash Flow

House brands are a solution to several problems, which is why they are likely to increase in importance. On the consumer side, they provide buyers with reputational assurances. You might wonder if a $3 wine can be any good, but you are more likely to try it if Trader Joe’s or Wal-Mart stands behind it. As I have written before, a $3 unknown wine at Safeway makes you think “how can it be any good?” while a $3 wine with the Trader Joe’s imprimatur makes you think “how bad can it be?” You might buy the latter but not the former.

The British have years of experience with house brands — it is why they are [for now] the world’s most important wine market and why Britain’s supermarkets are arguably the most sophisticated wine distribution machines on earth. The U.S. is catching up, but Britain still leads.

Reputation is especially important when consumers are trading down, moving into unfamiliar territory on the lower shelves. Decanter reports that while some British consumers are trading down to house brands, building that market, existing customers are trading up within the house brand portfolio! If this trend continues it will be hard to resist the house brand strategy.

Supply Side Wine

House brands have big advantages on the supply-side, too. Producers with surplus wine are often happy to sell it off through house brand bopttlings because it generates cash flow without directly undercutting their own brands and market. In my international economics class we call this “dumping.” You sell off unintended surpluses (of which there are plenty just now) through retailers in a different market segment, allowing you to maintain reputation and price points in the home market. If you start discounting wine to sell it, we have learned, it is sometimes difficult to regain the ground you have lost.

Some British retailers have moved aggressively into the supply chain, buying up grapes and surplus wines and acting as full-fledged negociants, but it isn’t really necessary to make such a large commitment to get into the house brand wine business. There are plenty of regional and national firms who can quickly respond to demand. No large investment is required, cost is low.

House brands can also have a somewhat fluid identity (not tied tightly to a particular region or style), which allows them to benefit from global opportunities, sourcing Sauvignon Blanc from Chile, for example, and Pinot Noir from Northern Italy or the South of France.

The main problem is to be sure that quality is good enough. Otherwise you have put your own brand in jeopardy.

Three Way Battle

The world’s wine markets are a battleground for three models of wine sales. The German model is based upon low cost (one euro per liter) and hard discount sellers like Aldi. The American model is all about corporate brands like Gallo and Constellation Brands. The British model is built upon upscale supermarkets and the house brands they sell.

Recent news suggests that the British model is gaining ground, both in the UK and here in America, where it is the model that drives Costco sales (Trader Joe, on the other hand, uses a version of the German system). It will be interesting to see if this trend persists once the recession eases up.

Decanter's Wine Power List

2009-07-24T17:15:34Z

July 24, 2009 by Mike Veseth (University of Puget Sound and The Wine Economist). Originally posted on The Wine Economist on July 14, 2009.

Decanter, the self-proclaimed “World’s Best Wine Magazine,” takes its rankings very seriously. Wine rankings, of course, and, in the July 2009 issue, Power rankings. Who are the most powerful people in the world of wine and what does the power list tell us? Let’s see if we can find the message in this bottle.

The Power List

The names on the power list are very interesting but the story that they tell about wine today is perhaps more important. Here are the first ten (top ten) people on the list.

Richard Sands, USA, Chairman, Constellation Brands
Robert Parker, USA, wine critic
Mariann Fischer Boel, Denmark, EU Commissioner for Agriculture
Mel Dick, USA, Southern Wine & Spirits (wine distributor)
Annette Alvarez-Peters, USA, Costco wine director
Dan Jago, UK, Tesco wine director
Jean-Christophe Deslarzes, Canada, President of Alcan Packaging
Jancis Robinson, UK, wine critic, author and journalist
Nicolas Sarkozy, France, President of France
Pierre Pringuet, France, Pernod Ricard

Since Decanter is a British magazine with very small US distribution you might be surprised that three of the top ten positions (and both of the top spots) are held my Americans, but don’t be. Constellation Brands is the largest wine company in the world and accounts for one out of eight bottles of wine sold in the UK. And Robert Parker is best known for his ratings of French wine, not Napa bottlings, which is important to British buyers and merchants. The presence of Sands and Parker at the top of the list does not reflect any sort of US-centrism, just the realities of the global marketplace. It really is a global list. Or at least, like those famous New Yorker cover illustrations, the globe as seen from London.

I won’t list the second ten names (out of 50 in total), but the I think they illustrate the global reach of the wine market today: America, China, Chile, Australia, Spain and so on. Even India, an emerging wine market, makes the top 50 ranking.

The list is complete and up-to-date (Gary Vaynerchuck, the US internet wine guru, shows up at number #40), but there are some interesting gaps. Fred Franzia, the godfather of Two Buck Chuck, is nowhere to be found, for example, despite his obvious influence on the US market, while Judy Leissner of Grace Vineyard in China, who perhaps represents the future of Chinese fine wine, makes the “Ones to Watch” list.

No wine economists make the list, alas. Greg Jones, the respected Southern Oregon University wine climatologist, is the only professor (#33). Maybe next year …

The Story

It is fun to see who makes the list and who doesn’t (why Jancis and not Oz?), but the ranking is more interesting if you strip out the personalities and consider what market forces they represent. Herewith my version of this story.

The world of wine is very unsettled. Although wine is one of the most fragmented global industries (much less concentrated than beer or spirits, for example), size matters more and more as consolidation continues. [Hence the power of Constellation Brands, Pernod Ricard and Southern Wine & Spirits.] Reputation matters, of course [Parker and Robinson], but the world is changing and everything is up for grabs from how and where wine is sold [Costco and Tesco] to how the bottle is sealed [Alcan].

Although change is generally associated with New World wine, this is no longer the case. The biggest threats to “business as usual” for Old World wine come from inside the European Union itself. On one hand, the new EU wine regime [Mariann Fischer Boel] will pressure Old World wine to compete with the New World head-on and without continuing EU support. On the other hand we have an unexpected prohibitionist movement [symbolized by Sarkozy] that seeks to regulate wine like the Americans do (even as some parts of America are changing) — as a dangerous controlled substance. It is thus imperative for Old World wine to master the tricks of the New World industry — tricks that Constellation and Southern and Costco symbolize.

These changes take place, of course within the context of the expanding global market, global climate change and a continuing global economic crisis (that’s where a wine economist would have been a useful inclusion).

I won’t pretend that the Decanter Power List is a scientific ranking (Decanter doesn’t claim this in any case), but it is an interesting peek into how wine insiders view their industry. I’ll be curious to see how the names and the story lines change when the next Power List appears.

Time to Invest in Wine?

2009-05-24T15:25:00Z

May 24, 2009 by Mike Veseth (University of Puget Sound and The Wine Economist). Originally posted on The Wine Economist on May 21, 2009.

October. This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August, and February.” — Mark Twain, Pudd’nhead Wilson (1894)

I wonder what Mark Twain would say about speculating in wine in October, May or any other month? I expect he would be suspicious of the idea. Mark Twain was a great author but a lousy investor. His cautious attitude toward investment was based upon his own disastrous financial experiences.

I was reminded of this quote this morning when I opened the New York Times “Special Section on Wealth & Personal Finance.” The cover features a half-page color image of an exploding cherry pie (or maybe it’s strawberry — what do you think?). I am not really sure what it means.

What Time Is It?

But the theme of the special section is pretty clear — time to consider alternative investments and investment strategies. And on page 4 I found the article that got me thinking about Mr. Twain’s investment advice: Investing in Wine: Now May Be the Time by William L. Hamilton. It’s an interesting article — click on the link to read it.

The idea, of course, is that wine prices have been falling, so this is an opportunity to buy in at the market bottom. The Times article reports that

“It’s a great time to buy wine, the best time in a decade,” said Charles Curtis, who is in charge of Christie’s North American wine department. “People we’ve never heard of are jumping into the market, taking advantage of the lull to get into collecting, now that they have access.”

I am naturally a bit suspicious of buying advice given by people with an interest in the sales. They always seem to think that now is the time to buy. Rising prices? Buy now because they can only go higher. Falling prices? But now before they rise again. Mr. Curtis may be right, and I’m sure his recommendation is honestly given, but he might be wrong, too.

Uncommon Times

These are uncommon economic times and market changes are unusually hard to predict, which makes investing even in fine wines feel a bit speculative. Alfred Marshall, the great Cambridge economist, argued that markets are generally as stable and predictable as an apple in a bow. Prices fall when there is a surplus until the excess supply is gone. Prices rise when there is a shortage until the shortage disappears. The movement towards stable equilibrium is quite strong and predictable.

But wine markets today look a bit more unstable — more like that exploding pie now that I think of it. Here’s another quote from the New York Times article.

Though falling prices kept many collectors from selling, reducing the amount of wine on the market, returning prices in the last four months have produced an uncomfortable volume of wine to sell, said Charles Curtis of Christie’s.

The first part of the sentence describes how a market responds to surplus — falling price causes sellers to pull some goods out of the market. The second part describes a market in shortage — the opposite condition — where rising price brings sellers into the market. This is not a combination of forces that you expect to see in the same paragraph much less the same sentence.

There are a number of supply-demand changes that could account for this (Econ 101 students — do your stuff), but one distinct possibility is what economists call over-shooting, which is a characteristic of some financial markets and especially foreign exchange markets and maybe now wine markets. When over-shooting occurs, prices don’t drop smoothly to equilibrium like an apple in a bowl. Rather they over-shoot the equilibrium and then shoot back up. Back and forth, sometimes in increasingly unstable cycles. Market equilibrium and the “true market price” are hard to determine.

It is difficult to know where prices will go next in a market like this and the difference between “investing” and “speculating,” at least in the short run, is not completely clear. I don’t give investment advice (or rate wines, either, which makes this an unusual wine blog), but I’m not planning to rush into high end wine markets just yet.

Investors vs Collectors

But then I’m not really a wine investor. In my reading I find the terms wine investor and wine collector often used as synonyms, but I’m not sure they should be. A wine collector buys what he or she wants to own (and, presumably, drink). It’s a personal thing. A wine investor should buy what other people will want to own, which might have nothing to do with personal taste. I have known only a few real wine investors but lots of wine collectors who justify at least some of their purchases as investments, but don’t manage them as they would a real investment.

In today’s market, however, both groups need to realize that there is a significant speculative element to their wine purchases and keep Mark Twain’s 115 year-old warning in mind!

The Santa Margherita Syndrome

2009-04-12T23:09:00Z

April 12, 2009 by Mike Veseth (University of Puget Sound and The Wine Economist)

Many articles have appeared recently advising wine consumers on “trading down” strategies for the recession — where to find the best values and bargains as the market slump continues. (Thanks to my crack team of research assistants — Michael, David and Tom — for your tips on this topic.)

One of the best pieces I’ve read comes from Dorothy J. Gaiter and John Brecher at the Wall Street Journal: 10 ways to save money ordering wine at restaurants. All their advice is timely, but rule #6 really caught my eye:

6. Never order Santa Margherita Pinot Grigio. We don’t mean to pick on Santa Margherita. We know many people like it and that’s fine. But because so many people like it, it is routinely one of the most outrageously priced wines on the list.

Nothing personal, Dottie and John said, it’s just supply and demand plus a certain bandwagon effect that seems to afflict wine drinkers when confronted with a complicated and uncertain set of choices.

We note it here only as a classic example of this: If you stay within your comfort zone, ordering only wines you already know, you will be punished for it, price-wise. In addition, no wine is going to seem like a good value to you when you know you could buy it at a local store for half the price or less. That’s why it’s so important to focus on labels or kinds of wines that you wouldn’t otherwise see. … Remember: There is value in tasting something new.

Sensible advice, although not always easy advice to follow in practice given the high cost of restaurant wine. Everyone wants to find that delightful unexpected bargain, but no one really likes paying the bill for a wine experiment that disappoints. So restaurants and wine consumers alike seem to find themselves drawn to a small set of “usual suspects.”

Demand and Supply

Wine & Spirits magazine surveys restaurants each year to try to discover trends both in general and in specific segments of the market. This year’s poll (see the April 2009 issue) provides early data on how the recession is affecting wine sales and some of the strategies that restaurants are trying to deal with this increasingly serious problem.

W&S provides a lot of information about what successful restaurants are doing to cope with the weak economy. One unexpected implication of the survey seems to be this: Always try to sell customers Santa Margherita Pinto Grigio.

The W&S editors do not advise this, of course (they are very careful in this regard — they just report the findings); it just seems to be restaurant conventional wisdom.

W&S asks restaurants to identify the wines that they offer by the bottle or serve by the glass and then publishes the names of the most-reported products. The most listed wine-by-the-glass, for example, is Sonoma-Cutrer Russian River Chardonnay (11.1 responses per 100 restaurant replies), which sold for an average price of $12.67 per glass in 2008. Santa Margherita Pinot Grigio was #6 on the list (number six again … spooky), reported by 6.7 per 100 restaurants. It sold for an average price of $14.40 per glass in 2008.

A quick internet search reveals that Santa Margherita often sells for around $20 per bottle retail, which suggests a wholesale price of $14-$15 — suspiciously close to the $14.40 average per glass tariff. You can begin to see why it would be a popular restaurant choice. And why Dottie and John’s number one rule is …

1. Skip wine by the glass. Restaurateurs like to make enough on a single glass to pay for a whole bottle, which is great for them but not so great for you.

W&S lists Santa Margherita as the number one wine in both the Pinot Gris/Pinot Grigio and the Italian wine categories. The average per bottle restaurant price was $52, which indicates a somewhat higher mark up over wholesale than the usual restaurant rule of thumb. All of which makes me think that wine consumers need to become a bit better educated about wine economics because it is pretty plain that restaurants have been hitting the books on how to use demand and supply to preserve profit in these unsettled economic times.

What Should I Order?

So where are the values on restaurant wine lists? The simple answer is that there is no simple answer (apart from Dottie and John’s good advice). The W&S poll asked restaurants to list wines under $25 per bottle and the most frequent response was Cooperidge White Zin and Chardonnay, $24 average price. Cooperidge is a Gallo restaurant brand. Interestingly, it appeared in just 1.9 per 100 responses.

The number two and three bargain wines were both Ste Michelle Wine Estate products from Washington State — Chateau Ste Michelle Riesling ($24 / 0.7 responses per 100) and 14 Hands Columbia Valley Cabernet Sauvignon ($21.50 / 0.7 responses per 100).

No very strong conclusions can be drawn from this data but they do suggest that (1) there is no one wine or brand that restaurants consistently go to for the value-seeking customers, so you will have to explore the wine list carefully to find what you are looking for, but (2) it might be smart to include Washington State wines in your treasure hunt.

Fast Food Restaurants and Obesity

2009-03-12T06:34:00Z

March 12, 2009, by Karl Storchmann (Journal of Wine Economics)

Do we buy SUVs because we are talked into them? Or do GM, Ford and Chrysler build SUVs because we want them? These questions have been as old as the field of economics.

Here, we are not dealing with SUVs but with wine -- and food. After all, the American Association of Wine Economists also has a food department, the Association of Food Economists (AFE). And one of the most pressing food-related question deals with fast food and its unhealthy consequences.

We all know (or hope) that obesity and wine consumption are natural enemies. In fact, a simple correlation between the fraction of the obese population and per capita wine consumption on a state level (as of 2007, see table) yields a coefficient of r = -0.62. So far, that is good news.

But how about our kids?

Back in 2002, The New York Times reported about two teenage girls that sued two Bronx McDonalds franchises they frequented for damages related to their obesity (here is the link). Their lawyer said the chain's billion-dollar advertising campaign encourages children to find their inner glutton. “Young individuals are not in a position to make a choice after the onslaught of advertising and promotions.'' The lawsuit was dismissed as frivolous.

In 2004, the House passed the so-called Cheeseburger Bill saying that overeating is a problem for individuals, not the courts. This has bared people from suing restaurants on the ground that their food makes customers fat (NY Times link).

Meanwhile, the prevalence of obesity has been growing steadily and children and teenager are particularly affected. Not surprisingly, obese children and adolescents are more likely to become obese as adults. For example, one study found that approximately 80% of children who were overweight at aged 10–15 years were obese adults (CDC link).

The CDC reports that obese children and teens have been found to have increased risk factors for cardiovascular disease (CVD), including high cholesterol levels, high blood pressure, and abnormal glucose tolerance. In a population-based sample of 5- to 17-year-olds, almost 60% of overweight children had at least one CVD risk factor while 25 percent of overweight children had two or more CVD risk factors. Some consequences of childhood and adolescent overweight are psycho-social. Obese children and adolescents are targets of early and systematic social discrimination. Less common health conditions associated with increased weight include asthma, hepatic steatosis, sleep apnea and Type II diabetes.

Progress toward reducing the national prevalence of overweight and obesity is monitored using data from the National Health and Nutrition Examination Survey (NHANES). Glancing over the the trends of the last last 30 years is daunting. The most recent NHANES data (2003–2006) showed that for children aged 6 –11 years and 12–19 years, the prevalence of overweight was 17.0% and 17.6% respectively. This is about three times as high as in the late 1970s. The Centers for Disease Control and Prevention (CDC) provide more informative data on obesity at http://www.cdc.gov/nccdphp/dnpa/Obesity/trend/maps/index.htm

The American Association of Wine Economists just posted a new Working Paper (AAWE Working Paper No. 33) entitled “The Effect of Fast Food Restaurants on Obesity” by Janet Currie (Columbia University), Stefano DellaVigna (UC Berkeley), Enrico Moretti (UC Berkeley) and Vikram Pathania (UC Berkeley). Drawing on an enormous data set, the authors analyze how the supply of fast food affects the obesity rates of 3 million school children and the weight gain of over 1 million pregnant women. The full paper can be accessed here (#33); it's free.

This is a solid paper and their findings are amazing. Among 9^th grade children, a fast food restaurant within a tenth of a mile of a school is associated with at least a 5.2 percent increase in obesity rates. However, there is no discernable effect at .25 miles and at .5 miles.

Among pregnant women, their results indicate that a fast food restaurant within a half mile of her residence results in a 2.5 percent increase in the probability of gaining over 20 kilos. The effect is larger, but less precisely estimated at .1 miles. In contrast, the presence of non-fast food restaurants is uncorrelated with obesity and weight gain.

The authors did some additional consistency checks. For instance, the proximity to future fast food restaurants is uncorrelated with current obesity and weight gain, conditional on current proximity to fast food. The implied effects of fast-food on caloric intake are at least one order of magnitude smaller for mothers than for school children, which suggests that they are less constrained by travel costs than school children.

What do we infer from that? Clearly, supply and demand are interdependent. But why do we expect that kids make the right choices? This is easily understood with respect to alcohol. In the U.S., we don't allow anybody younger than 21 to touch a glass of wine or beer. Since teenagers and 20-year-olds underestimate alcohol's bad impact we need to shield them. Why does this logic not apply to fast food?

For the authors of our paper, the political implications of their findings are evident. They state them on page 1:

“Our results imply that policies restricting access to fast food near schools could have significant effects on obesity among school children, but similar policies restricting the availability of fast food in residential areas are unlikely to have large effects on adults.”