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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 & 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. David Reinstein & Joon Song, 2012. "Efficient Consumer Altruism and Fair Trade Products," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 21(1), pages 213-241, 03.
  2. Hannes Koppel & Günther Schulze, 2013. "The Importance of the Indirect Transfer Mechanism for Consumer Willingness to Pay for Fair Trade Products—Evidence from a Natural Field Experiment," Journal of Consumer Policy, Springer, vol. 36(4), pages 369-387, December.
  3. Alexander Kadow, 2011. "The Fair Trade movement:an economic perspective," Working Papers 2011_05, Business School - Economics, University of Glasgow.
  4. Mark Hayes, 2006. "The Economics of Keynes: A New Guide to The General Theory," Books, Post Keynesian Economics Study Group (PKSG), number nggt.
  5. 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.
  6. Alex Nicholls, 2010. "Fair Trade: Towards an Economics of Virtue," Journal of Business Ethics, Springer, vol. 92(2), pages 241-255, April.
  7. 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.
  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. 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.
  10. Martin Richardson & Frank Staehler, 2007. "Fair Trade," Working Papers 0709, University of Otago, Department of Economics, revised Jul 2007.
  11. 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.
  12. Dammert, Ana C. & Mohan, Sarah, 2014. "A Survey of the Economics of Fair Trade," IZA Discussion Papers 8167, Institute for the Study of Labor (IZA).

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