Wine Economics

Quantitative Studies and Empirical Applications

O. Güvenen, H. Serbat, E. Giraud-Héraud, M. Pichery, O. Güvenen, H. Serbat, E. Giraud-Héraud, M. Pichery

• Publisher: Palgrave Macmillan
• Year: 2013
• Print ISBN: 9781137289513
• eBook ISBN: 9781137289520
• Topic: Economics
• Subtopic: Business General
• Index: Economics

The book proposes an overview of the research conducted to date in the field of wine economics. All of these contributions have in common the use of econometric techniques and mathematical formalization to describe the new challenges of this economic sector.

Part I

Alcohol Consumption and Welfare

1

Life Satisfaction and Alcohol Consumption: An Empirical Analysis of Self-Reported Life Satisfaction and Alcohol Consumption in OECD Countries

Jan Bentzen and Valdemar Smith

1.1 Introduction

Since the 1960s the level of alcohol consumption, as well as the drinking patterns, have changed significantly in several OECD countries. From a producer’s point of view, structural demand shift is of particular interest as the observed changes may reflect shifting preferences of consumers. The old, traditional wine-producing countries have experienced a decline in domestic wine consumption, and additionally there has in some cases been a shift towards increased beer consumption, for example in Spain beer consumption is exceeding wine consumption. In the northern European non-wine-producing countries a decline has been observed in the shares of beer and spirits in alcohol consumption. In general, patterns in alcohol consumption may have been in a process of convergence in the OECD countries during recent decades where the level of alcohol consumption – as well as the structure among the various alcoholic beverages – exhibit less variation than the conditions a few decades back in time.

Naturally, the changing patterns in alcohol consumption may reflect changes in relative prices and income levels, but also new consumers entering the market. However, the magnitude of the changes also suggests that changes in consumer preference might play a significant role. Assuming that consumers act as rational individuals, adjustments in the composition of consumer goods reflect higher utility. Therefore, these alterations must have been associated with more well-being or happiness, as a traditional welfare economics approach to this issue would suggest. Accordingly, the issue of whether shifting drinking patterns is linked to more well-being is the main hypothesis to be tested in the empirical part of the present analysis.

By now, a huge amount of literature and empirical data for happiness or well-being is available. Improvements in these indices of ‘life satisfaction’ –usually based on self-reported data – might be influenced by a number of traditional factors, such as income, employment, inflation and economic and political freedom, that usually appear in the empirical studies of happiness. But patterns of alcohol consumption are also expected to affect life satisfaction; wine in particular is usually assumed to be linked to enjoyment of life or happiness.

The aim of this chapter is to analyse whether alcohol consumption influences the level of well-being, and this will be addressed by using panel data for 21 OECD countries. Appropriate data is available from 1961 to 2005 for both happiness (a ‘life satisfaction index’) and alcohol consumption. This gives a rather large dataset for use in the econometric analysis, but it is especially the data for well-being, with its somewhat subjective, self-reported values, that poses some challenges for the econometric analysis.

The chapter is organised as follows. In Section 1.2 we present a literature review with a focus on the relationship between happiness and alcohol consumption, including the sparse empirical evidence on this issue. Section 1.3 deals with modelling the happiness–alcohol relationship. The next Section 1.4 deals with the data for alcohol consumption and the life satisfaction index covering the 21 OECD countries; the latter also includes a concept capturing the structure of alcohol consumption with respect to beer, wine and spirits, but leaving the technical details to the Appendix. The empirical results concerning the link between happiness and alcohol consumption are reported in Section 1.5, and finally Section 1.6 concludes.

1.2 Literature review and issues in the happiness–income link

In the economics literature on happiness and life satisfaction, a large number of studies deal with the income-happiness nexus. In this literature there is an expectation of a positive relationship between income and self-reported happiness or well-being. In empirical studies, happiness is modelled as a function of income as well as other explanatory variables. However, there may be a problem of endogeneity, as higher well-being might increase working abilities and thereby income. Thus, not only do several factors complicate the empirical assessment of this happiness–income link, but there is also an ambiguity about the interpretation of concepts like ‘happiness’ and ‘life satisfaction’, as discussed in the literature on these issues where reviews of these most important topics can be found, as in Easterlin (2001), Frey and Stutzer (2002), Graham (2005), Di Tella and MacCulloch (2006), Stevenson and Wolfers (2008) and Blanchflower and Oswald (2011).

In addition to income, other macroeconomic factors have been applied in relation to empirical models of happiness. Di Tella et al. (2001) find people happier in case of low unemployment and inflation; and political and economic freedom have been investigated in the happiness literature – see Frey and Stutzer (2002). The primary focus of the present analysis is not on these issues but on whether specific consumer goods such as alcoholic beverages will appear with significant impacts in a model of life satisfaction. To the best of our knowledge, no empirical evidence exists on this topic, but – indirectly related to the present topic – many studies report detrimental health effects from excessive intake of alcohol, for example Gutjahr et al. (2001) and Norström and Ramstedt (2005). Still, a moderate level of alcohol consumption may appear with positive effects, especially concerning heart disease (de Lorimier 2000). However, next to the health effects, the consumption of alcoholic beverages could be assumed – in accordance with rational behaviour – to have a positive influence on utility and well-being. It may not be only the level of alcohol consumption but also the structure concerning the respective beverages that may influence well-being. There is some empirical evidence of convergence in tastes, cf. Aizenman and Brooks (2008) and Fogarty (2010). Drinking patterns also affect, for example, liver function and may therefore have detrimental health effects; see Stranges et al. (2004) and Astudillo et al. (2010), which provide incentives to change the composition of alcoholic beverages in a more balanced direction, in addition to considering the overall level of alcohol intake. Consequently, diversity in the composition of drinking patterns appears to have a positive influence on well-being.

General empirical studies of happiness based on individual data report that better-off people are happier than the poorer ones, where positive relationships within countries seem to exist (Stevenson and Wolfers 2008). Studies of happiness across countries and over time do not give much support to the positive link, which appears in the literature as the so-called Easterlin Paradox. When increases in income do not seem to increase happiness, this may be explained by an assumption that people rely on relative levels of income when answering surveys on their present level of well-being, instead of basing their answers on absolute levels, Graham (2005). There are continuous shifts in people’s aspirations, in the sense that an increase in the level of a variable that affects happiness may accompany a simultaneous increase in the level of aspiration, and therefore people’s answers to surveys about their well-being will remain remarkably stable. In surveys, individuals will usually come up with answers in the same narrow range of the respective scales used, no matter that the variable that affects happiness shifts over time. In the literature the graphical exposition is as shown in Figure 1.1.

Assume X affects life satisfaction. In the case of no shift in aspirations, an increase in the explanatory variable X will also correspond to a higher level of happiness, as indicated by the movement A, B and C along the AS₁ curve. When aspirations shift over time –due to relative comparisons of well-bei...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Figures
• List of Tables
• Acknowledgements
• Notes on Contributors
• Introduction and Overview
• Part I Alcohol Consumption and Welfare
• Part II Consumer Behaviour and Prices
• Part III Wine Ranking and Financial Issues
• Part IV Intermediary Markets and Strategic Decisions
• Part V New Topics
• Index