Valuing Vineyards: A Directional Distance Function Approach Robin Cross a , Rolf Färe b , Shawna Grosskopf c and William L. Weber d Abstract We exploit the duality between the cost function and the directional distance function in value space to recover hedonic prices of product or asset characteristics. An application is offered for 96 Oregon vineyards located in the Willamette Valley of Oregon that sold between 1995 and 2007. Specifically, we recover hedonic prices for the number of high-, medium-, and low-quality vineyard acres and the number of nonvineyard acres sold in the parcel. Not surprisingly, higher-quality vineyard acres have a higher estimated hedonic price than medium- or low-quality acres, but as the number of high-quality acres increases, the hedonic price falls. (JEL Classification: D24, C61, Q10) Keywords: Hedonic prices, directional distance function. I. Introduction Products or assets are often endowed with a set of characteristics. Although the characteristics of the product usually do not have explicit prices, changes in the bundle of characteristics cause the price of the product or asset to change. Sherwin Rosen (1974) built a structural model that assumed a spatial equilibrium in characteristics’ space between producers and consumers, such that the hedonic price of a characteristic equaled both the consumer’s marginal rate of substitution and the producer’s marginal rate of transformation. Such a model allowed the implicit hedonic prices of product characteristics or attributes to be recovered by regressing product prices on characteristics. Over time, the hedonic price model has been widely adapted and refined, especially in the area of real estate, where observed house prices can be used to infer not only the values of the private characteristics of the house, such as the number of square feet, but also the values of the public good © American Association of Wine Economists, 2013 a Department of Agricultural Economics, Oregon State University. b Department of Economics and Department of Agricultural Economics, Oregon State University. c Department of Economics, Oregon State University. d Department of Economics and Finance, Southeast Missouri State University. Journal of Wine Economics, Volume 8, Number 1, 2013, Pages 69–82 doi:10.1017/jwe.2013.5