Incentive structures: quality competition and the production of fine Californian wines

ABSTRACT When and for whom does it pay to make high-quality products? In this paper, I address this question through the lens of Harrison White’s socioeconomic models of production. The socioeconomic models relate economist incentives of cost-efficiency to sociological insights into the construction of quality on markets. Differences in firm size and quality sustain distinct market niches whose appeal to producers vary. The ordering of niches by quality and associated implications for profitability establish the incentive structure of the market. As illustration, I trace the evolution of the Californian wine industry from its nadir under prohibition to today. The account motivates a productive reading of the socio-economic models that tempers their analytical focus and broadens their scope of application.