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On the efficiency of fair trade


  • Mark Hayes


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.

Suggested Citation

  • Mark Hayes, 2006. "On the efficiency of fair trade," Review of Social Economy, Taylor & Francis Journals, vol. 64(4), pages 447-468.
  • Handle: RePEc:taf:rsocec:v:64:y:2006:i:4:p:447-468 DOI: 10.1080/00346760601024419

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    References listed on IDEAS

    1. Dutt, Amitava Krishna, 1987. "Keynes with a Perfectly Competitive Goods Market," Australian Economic Papers, Wiley Blackwell, vol. 26(49), pages 275-293, December.
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    Cited by:

    1. 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.
    2. repec:wsi:wschap:9789813207615_0017 is not listed on IDEAS
    3. 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.
    4. Milford Anna B., 2012. "The Pro-Competitive Effect of Coffee Cooperatives in Chiapas, Mexico," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 10(1), pages 1-29, March.
    5. Gingrich, Chris D. & King, Emily J., 2012. "Does Fair Trade Fulfill the Claims of its Proponents? Measuring the Global Impact of Fair Trade on Participating Coffee Farmers," Journal of Cooperatives, NCERA-210, vol. 26.
    6. Hayes, M.G., 2008. ""Fighting the Tide: Alternative Trade Organizations in the Era of Global Free Trade"--A Comment," World Development, Elsevier, vol. 36(12), pages 2953-2961, December.
    7. Alexander Kadow, 2011. "The Fair Trade movement:an economic perspective," Working Papers 2011_05, Business School - Economics, University of Glasgow.
    8. 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.
    9. 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.
    10. Albert de Vaal & Marten Breimer, 2012. "The Effects of Fair Trade When Productivity Differences Matter," DEGIT Conference Papers c017_017, DEGIT, Dynamics, Economic Growth, and International Trade.
    11. Martin Richardson & Frank Stähler, 2017. "Fair Trade," World Scientific Book Chapters,in: Dimensions of Trade Policy, chapter 17, pages 359-388 World Scientific Publishing Co. Pte. Ltd..
      • Martin Richardson & Frank Stähler, 2014. "Fair Trade," The Economic Record, The Economic Society of Australia, vol. 90(291), pages 447-461, December.
    12. Mark Hayes, 2006. "The Economics of Keynes: A New Guide to The General Theory," Books, Post Keynesian Economics Study Group (PKSG), number nggt.
    13. Alex Nicholls, 2010. "Fair Trade: Towards an Economics of Virtue," Journal of Business Ethics, Springer, vol. 92(2), pages 241-255, April.
    14. Andreas Graichen, 2008. "Fairtrade Labelling in a Bertrand Competition Model with Monopsony Power," Working Papers 050, Bavarian Graduate Program in Economics (BGPE).
    15. Ana C. Dammert & Sarah Mohan, 2015. "A Survey Of The Economics Of Fair Trade," Journal of Economic Surveys, Wiley Blackwell, vol. 29(5), pages 855-868, December.
    16. 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.
    17. Reinstein, David & Song, Joon, 2008. "Efficient Consumer Altruism and Fair Trade," Economics Discussion Papers 2936, University of Essex, Department of Economics.
    18. 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.
    19. Steve Suranovic, 2015. "The Meaning of Fair Trade," Working Papers 2015-2, The George Washington University, Institute for International Economic Policy.


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