Estimating the Supply Elasticity of California Wine Grapes Using Regional Systems of Equations

Abstract

AbstractThis article is the first of its kind to estimate econometrically the supply elasticity of California wine grapes. Wine grapes constitute the single largest crop in the state of California in terms of total receipts. Allowing for the dynamic adjustments of quasi-fixed inputs, we estimate simultaneous systems of equations for California's four major wine grape growing regions and eight of the most widely grown varieties. We find that California wine grape production is, on the whole, inelastic with respect to prices received. The variety showing the most price responsiveness is Chardonnay. There appears to be no significant difference in price responsiveness between the coastal and inland growing regions, or between red and white grape varieties. (JEL Classification: Qll, Q13, R14)