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On the efficiency of fair trade

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Author Info

  • Mark Hayes

Abstract

This paper uses competitive equilibrium theory to analyze the economic efficiency of international “fair trade” between ethical consumers and low-income producers. The main analytical innovations are the reconsideration of the labor supply decision in a state of Keynesian involuntary unemployment as a choice between work and, not leisure, but inferior production activities; and the application of Pigou and Robinson's theory of employer monopsony, leading to a focus on the “local fair trade organization”, which has a similar effect to a labor union or minimum wage in eliminating monopsony rents. A price premium is found neither necessary nor sufficient for fair trade, and in a state of involuntary unemployment a premium does not lead to inefficient allocation. The conclusion is that fair trade improves welfare by strengthening competition for labor, and should be encouraged as a complementary element of an enlightened trade liberalization policy.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/00346760601024419
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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal Review of Social Economy.

Volume (Year): 64 (2006)
Issue (Month): 4 ()
Pages: 447-468

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Handle: RePEc:taf:rsocec:v:64:y:2006:i:4:p:447-468

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Related research

Keywords: fair trade; efficiency; involuntary unemployment; monopsony;

References

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  1. Dutt, Amitava Krishna, 1987. "Keynes with a Perfectly Competitive Goods Market," Australian Economic Papers, Wiley Blackwell, vol. 26(49), pages 275-93, December.
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Citations

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Cited by:
  1. Fort, Ricardo & Ruben, Ruerd, 2009. "The impact of Fair Trade on banana producers in northern Peru," 2009 Conference, August 16-22, 2009, Beijing, China 50964, International Association of Agricultural Economists.
  2. Martin Richardson & Frank Staehler, 2007. "Fair Trade," Working Papers 0709, University of Otago, Department of Economics, revised Jul 2007.
  3. Iain Davies & Lynette Ryals, 2010. "The Role of Social Capital in the Success of Fair Trade," Journal of Business Ethics, Springer, vol. 96(2), pages 317-338, October.
  4. David Reinstein & Joon Song, 2008. "Efficient Consumer Altruism and Fair Trade," Economics Discussion Papers 651, University of Essex, Department of Economics.
  5. Julie Steinkopf Rice, 2010. "Free trade, fair trade and gender inequality in less developed countries," Sustainable Development, John Wiley & Sons, Ltd., vol. 18(1), pages 42-50.
  6. Leonardo Becchetti & Benjamin Huybrechts, 2008. "The Dynamics of Fair Trade as a Mixed-form Market," Journal of Business Ethics, Springer, vol. 81(4), pages 733-750, September.
  7. Kadow, Alexander, 2011. "The Fair Trade movement: an economic perspective," SIRE Discussion Papers 2011-10, Scottish Institute for Research in Economics (SIRE).
  8. Geoff Moore & Richard Slack & Jane Gibbon, 2009. "Criteria for Responsible Business Practice in SMEs: An Exploratory Case of U.K. Fair Trade Organisations," Journal of Business Ethics, Springer, vol. 89(2), pages 173-188, October.
  9. Alex Nicholls, 2010. "Fair Trade: Towards an Economics of Virtue," Journal of Business Ethics, Springer, vol. 92(2), pages 241-255, April.

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