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Fair Trade and Free Entry: Can a Disequilibrium Market Serve as a Development Tool?

Author

Listed:
  • Alain de Janvry

    (University of California at Berkeley)

  • Craig McIntosh

    (University of California at San Diego)

  • Elisabeth Sadoulet

    (University of California at Berkeley)

Abstract

The Fair Trade (FT) coffee initiative attempts to channel charity from consumers to poor producers via increased prices. We show that the rules of the FT system permit this rent to be eliminated due to free entry and costly excess certification of output. Using data from an association of coffee cooperatives in Central America, we verify that expected producer benefits are close to 0 when we take into account the output that is certified but not sold as FT. Our results illustrate how free entry undermines the attempt at extending charity via a price distortion in an otherwise competitive market.

Suggested Citation

  • Alain de Janvry & Craig McIntosh & Elisabeth Sadoulet, 2015. "Fair Trade and Free Entry: Can a Disequilibrium Market Serve as a Development Tool?," The Review of Economics and Statistics, MIT Press, vol. 97(3), pages 567-573, July.
    • Handle: RePEc:tpr:restat:v:97:y:2015:i:2:p:567-573
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    More about this item

    Keywords

    fair trade; FT; fair trade coffee initiative; coffee; marketing; disequilibrium market; development tool;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Fair Trade and Free Entry: Can a Disequilibrium Market Serve as a Development Tool? (REStat 2015) in ReplicationWiki

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