The value of signals: Do self-declaration and certification generate price premiums for organic and biodynamic wines?

Given the growing demand for sustainable products, producers are faced with the question as to whether the costs of certification are necessary for credibility and associated price premiums. However, current research has not convincingly demonstrated customers' willingness to pay for organic or biodynamic products, as studies relying on stated preferences have produced results that are difficult, if not impossible to reconcile with observable behavior. Furthermore, no study has so far attempted to understand to what extent signals either reinforce or dilute each other and how this affects prices. To fill these research gaps, the wine industry serves as an example, since a large number of producers have already adopted organic or biodynamic practices. While some of these wineries have successfully applied for third-party certification, others follow strict guidelines without being certified and self-declare themselves to be eco-friendly. Using a large sample of 55,500 wines produced by 1,514 German wineries between 2010 and 2017, this study estimates a series of hedonic models across different price quantiles. The results indicate a statistically significant price premium for organic and biodynamic wines, the magnitude of which is, however, far smaller than the effects usually identified in surveys and laboratory experiments. While self-declaration is only a credible signal for organic practices generating a price premium of 8.6 percent, biodynamic practices require certification for a price premium of 4.1 percent. The results also suggest that the interaction of collective reputation and biodynamic practices has a significantly positive impact on prices. Thus, this study contributes to global sustainability research by showing that the costs of certification can be avoided since in certain cases self-declaration is sufficient to enable a price premium. (C) 2019 Elsevier Ltd. All rights reserved.