The Economics of Collective Reputation

Collective reputation is a common topic associated with wine in Italy, there is a certain standard expected when drinking wine from certain areas or even a particular taste that is associated with that region. Stefano Castriato and Marco Delmastro, the authors of this article, decided to test the significance of the effect that age, size, minimum quality standards and context have on the collective reputation of a wine denomination. They define these variables using several categories. Vertical differentiation can be things like the selection of vineyards, agronomical procedures, and oenological standards. Horizontal differentiation are variables like color and type. General characteristics includes the DOCG standing, age, and size. Another category is socio-economic indicators. These would be variables like GDP per capita, local entrepreneurial ability, geographic externalities, and crime rates.

The dependent variable in this paper is a measure of group reputation. This variable relies on scores assigned by Hugh Johnson's wine guide. This is a one star to four star rating for the collective reputation of a wine denomination. Because the wine denomination has to be international, only 723 of the original 1,424 Italian wines remain in the database. Most of the variables in this model are exogenous. However, DOCG and size may be endogenous, to prevent this the data for these two variables were lagged two years to 2006 and the rest of the data starts in 2008.

After running the several regressions, Castriato and Delmastro found age to have a strong positive effect on reputation, this was consistent with their hypothesis. They also found that size had a positive statistically significant effect on reputation. However, this was only the case until you reached a certain peak and then your denomination was exposed to a free rider problem. Socio-economic variables were also found to be statistically significant at a 5% level. DOCG was significant only when there were no minimum quality standards and no voluntary quality standards; with these in the regression the DOCG label did not have a significant effect on collective reputation.

This article shows the importance of a collective reputation established through quality standards, age, size, and socioeconomic variables. After visiting two different wineries with two different regional reputations, it is clear that collective reputation helps to define their market, but it does not mean anything if they do not maintain the integrity of that reputation.