Terroir in the New World: Hedonic Estimation of Vineyard Sale Prices in California

Abstract In the Old-World vineyards of Europe, a key concept that plays an important role in the production and appreciation of wines isterroir, which refers to the special characteristics of a place that impart unique qualities to the wine produced. We examine whetherterroirmatters in the New-World wines produced in California's Napa and Sonoma Counties by conducting a hedonic price analysis of vineyard sales over the period 1991 to 2007 to determine the relative effects on vineyard sales prices of designated appellations versus biophysical site attributes commonly associated withterroir, such as slope, aspect, elevation, and climate. Because vineyards that are sold are not necessarily representative of the universe of vineyards, we employ Heckman's two-stage econometric approach to control for possible sample-selection bias. We find that intrinsic site attributes and designated appellations influence vineyard prices, although our results are stronger and more consistent with regard to the influence of appellations. This finding indicates thatterroirmatters economically, even if the designated appellations have relatively less connection in reality withterroir. (JEL Classifications: C2, Q11)