Efficient Consumer Altruism and Fair Trade
AbstractConsumers have shown willingness to pay a premium for products labeled as "Fair Trade" and to prefer retailers that are seen as more generous to their suppliers and employees. We define a fair trade product as a bundle of a consumption good and a donation. An altruistic consumer will only choose this bundle over its separate elements if the bundle is less expensive. Thus, for fair trade to be sustainable in a competitive equilibrium, an efficiency must be generated. In general, the first-best level of investment (to reduce the retailer's cost or boosts quality) cannot be achieved when it is non-verifiable. However, the altruism of the consumer facilitates a more efficient contract: by paying the supplier more, the retailer can both extract more consumer surplus and increase the level of contracted investment, while preserving incentive compatibility. We provide empirical and anecdotal evidence for the assumptions and predictions of this model, focusing on the coffee industry.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 651.
Date of creation: 27 Mar 2008
Date of revision:
Postal: Discussion Papers Administrator, Department of Economics, University of Essex, Wivenhoe Park, Colchester CO4 3SQ, U.K.
Other versions of this item:
- 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.
- NEP-ALL-2008-04-12 (All new papers)
- NEP-CBE-2008-04-12 (Cognitive & Behavioural Economics)
- NEP-INT-2008-04-12 (International Trade)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mark Hayes, 2006. "On the efficiency of fair trade," Review of Social Economy, Taylor & Francis Journals, vol. 64(4), pages 447-468.
- Philip Booth & Linda Whetstone, 2007. "Half A Cheer For Fair Trade," Economic Affairs, Wiley Blackwell, vol. 27(2), pages 29-36, 06.
- Leonardo Becchetti, 2012.
"Voting with the wallet,"
International Review of Economics,
Springer, vol. 59(3), pages 245-268, September.
- Claire Chambolle & Sylvaine Poret, 2013.
"When fairtrade contracts for some are profitable for others,"
European Review of Agricultural Economics,
Foundation for the European Review of Agricultural Economics, vol. 40(5), pages 835-871, December.
- Claire Chambolle & Sylvaine Poret, 2013. "When fairtrade contracts for some are profitable for others," Working Papers 168378, Institut National de la Recherche Agronomique, France.
- Alexander Kadow, 2011.
"The Fair Trade movement:an economic perspective,"
2011_05, Business School - Economics, University of Glasgow.
- Rommel Salvador & Altaf Merchant & Elizabeth Alexander, 2014. "Faith and Fair Trade: The Moderating Role of Contextual Religious Salience," Journal of Business Ethics, Springer, vol. 121(3), pages 353-371, May.
- 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.
- Leonardo Becchetti & Pierluigi Conzo & Giuseppina Gianfreda, 2009.
"Market access, organic farming and productivity: the determinants of creation of economic value on a sample of Fair Trade affiliated Thai farmers,"
Econometica Working Papers
- Leonardo Becchetti & Pierluigi Conzo & Giuseppina Gianfreda, 2009. "Market Access, Organic Farming And Productivity: The Determinants Of Creation Of Economic Value On A Sample Of Fair Trade Affiliated Thai Farmers," Working Papers 0309, CREI Università degli Studi Roma Tre, revised 2009.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Essex Economics Web Manager).
If references are entirely missing, you can add them using this form.