Everyone knows the name Ernest Gallo. With his brother Julio they started the E&J Gallo Winery in Modesto, California in 1932. In 70 years the winery grew to be the largest in the world. Some evidence of the scale of the Gallo Winery's operations can be found in the interview itself.

“We will crush this year [1971] somewhere around 650,000 tons of grapes. We will produce only somewhere in the area of 50,000 tons” (Gallo, 1995, p.31).

A ton of grapes produces about 150 gallons of wine (Gallo, 1995). In 1971 the Gallo winery produced about 105,000,000 gallons of wine. That's a large operation by any standard.

This paper is based on an interview with Ernest Gallo conducted during the period 1969–1971 by the Regional Oral History Office, Bancroft Library, University of California, Berkeley.

The inspiration for the exegesis that follows comes directly from Harry G. Frankfurt, distinguished emeritus professor of philosophy at Princeton University, who recently published an enormously successful essay on the subject of bullshit (Frankfurt, 2005). In the author's view,

“One of the most salient features of our culture is that there is so much bullshit. Everyone knows this. Each of us contributes his share. But we tend to take the situation for granted. Most people are rather confident of their ability to recognize bullshit and to avoid being taken in by it. So the phenomenon has not aroused much deliberate concern. We have no clear understanding of what bullshit is, why there is so much of it, or what functions it serves.” (Frankfurt, 2005, p. 1)

A fine philosophical insight into bullshit is provided by Bernie Laplante, played by Dustin Hoffman in the movie “Hero.”

I report my tests of the hypothesis that wine consumers cannot match critics' descriptions of wines with the wines themselves. My results suggest that testers' ability to match the descriptions with the wines is no better than random. I report on more than two hundred observations of wine drinkers who engaged in the following experiment. The drinker faces 3 glasses of wine, two of which contain identical wines and the third contains a different wine. I record whether the drinker can distinguish wines—whether he can tell the singleton from the doubleton and, if the drinker can distinguish, which wine he prefers. I present the testers with descriptions of the two wines written by the same wine critic/reviewer. I find that 51 percent of the testers who can distinguish the wines correctly match the description of the wine with the wine itself. The percentage matching does not significantly differ from the expected-if-random half. I have recorded the sex of the testers and I can find that men can distinguish the wines better than random, but women cannot. The differences are so small, even though significant, however, that the Exact F test detects no significant difference between the ability of men and women in these experiments. The results span tests of wines from Bordeaux, Burgundy, the Rhône, Spain, Germany, and Australia; the tests use only still wines, all less than ten years old. (JEL Classification: C93, D12)

I dedicate this paper to Adrienne Lehrer, whose 1983 book, Wine and Conversation, with a different experimental design, anticipated these results.

Weather derivatives are a relatively new form of financial security that can provide firms with the ability to hedge against the impact of weather related risks to their activities. Participants in the energy industry have employed standardized weather contracts trading on organized exchanges since 1999 and the interest in non-standardized contracts for specialized weather related risks is growing at an increasing rate. The purpose of this paper is to examine the potential use of weather derivatives to hedge against temperature related risks in Canadian ice wine production. Specifically we examine historical data for the Niagara region of the province of Ontario, Canada, the largest icewine producing region of the world, to determine an appropriate underlying variable for the design of an option contact that could be employed by icewine producers. Employing monte carlo simulation we derive a range of benchmark option values based upon varying assumptions regarding the stochastic process for an underlying temperature variable. The results show that such option contracts can provide valuable hedging opportunities for producers, given the historical seasonal temperature variations in the region. (JEL Classification: G13, G32, Q14, Q51, Q54)

Since the beginning of 2006, the federation of wine producers (Inter-Rhône) offers its members (wine producers of the Rhône Valley) protection against wine price risks giving them the option to sell a portion of their production at €80 per hl, regardless of the prevailing market price. This risk management tool has the general features of an American put option with a strike price of 80 €/hl. Two mechanisms are used to reduce the hedging cost: the introduction of a barrier “up and out”, and the option to force producers to implement a non-optimal exercise strategy. We present two pricing models of this option (with and without barrier) followed by an application using the Inter-Rhône wine price data base. The cost of the first protection mechanism (without barrier) is about €10 per hi (i.e., 13.3 % of the current price) but only about €8 for the second (with barrier) representing 10.7 % of the current price. Beyond its traditional role of protection against price fluctuation, the option may also have a positive impact on price levels by stopping panic movements and strengthening the negotiating power of producers. (JEL Classification: Q14, G32)

To determine whether globalization is good for wine drinkers in the U.S., we examine the Wine Spectator's annual Top 100 lists, published since 1988. During this period, the average real price for these wines decreases from $43 to $26. Quality is consistent at around 93 points. Variety increases from six to twelve countries; the share of countries dominating the early lists declines from 95% to 75% over time. Our regression analysis indicates that when a New-New World wine replaces an Old World one, the average real price of the Top 100 list falls by 2.5%. (JEL Classification: F120, F140, C200)

“My only regret in life is that I did not drink more champagne.” (John Maynard Keynes) (Harod, 1951, p. 15)

The author distinguishes between the clinical and statistical meaning of varying levels of intertaster reliability for the 11 judges who evaluated 10 Chardonnays (6 American and 4 French) in the heralded 1976 Paris wine competition. Four wines showed levels of weighted kappa values (<0.40), that are considered poor by established biostatistical criteria. These ranged between 0.10, for the French Beaune Clos des Mouches 1973 Chardonnay to 0.33 for the U.S. Veedercrest 1972 Chardonnay. However, when levels of statistical significance of the weighted kappa (Kw) values were obtained, only the Clos des Mouches failed to reach statistical significance at the .05 level. The other three wines-the U.S. Chateau Montelena, 1973, with a Kw of 0.20; the U.S. 1973 David Bruce regular, with a weighted kappa value of .27 and the U.S. Veedercrest, with one of .33-reached statistical significance at p values of <.05, <.001, and <.0001, respectively. These findings are not weighted kappa specific, and reveal that when sample sizes are large enough, even the most trivial of results will be statistically significant, while often devoid of practical or clinical meaning-fulness. A level of Kw that is clinically meaningful will most likely be statistically significant. But high levels of statistical significance are no guarantee of clinical significance. Methods for resolving this “big N phenomenon” are presented and discussed. (JEL Classification: C12, C49)

In this study, we estimate a cross-sectional hedonic price function for Port wines in order to determine the price influence of several Port wine characteristics. Drawing on a large sample of more than 14,000 sales from the biggest Port wine firms we find that market prices can be explained by objective characteristics such as age, type of Port and type of brand appearing on the bottle label and subjective characteristics such as firm reputation. The Port type is the main price determinant. (JEL Classification: C21, Q11)