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Label Performance and the Willingness to Pay for Fair Trade Coffee: A Cross-National Perspective

  • Basu, Arnab K.
  • Hicks, Robert L.

In this paper we investigate how label information detailing the performance of the Fair Trade labeling program with respect to coffee affect consumers’ willingness to pay in the United States and in Germany. We provide respondents (University students in the U.S and Germany) information regarding hypothetical benefits of the Fair Trade Coffee program on its intended beneficiaries on the production side (the revenue gains to participating marginal farmers (scope of the program)), and using stated preference conjoint methods test how this performance criterion relates to the willingness to pay for Fair Trade Coffee. Our empirical results identify a “threshold'' property of performance-based labels. In effect, the willingness-to-pay for performance-based Fair Trade labeled coffee exhibits an inverted-U shape in the sense that the willingness to pay is positively related to the scope of the program, but only up to a critical level. Thereafter, the willingness to pay declines as the income gains to participating growers increases further. Interestingly, this inverted-U property is exhibited by both the U.S. and German respondents with different critical thresholds.

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File URL: http://purl.umn.edu/44336
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Paper provided by University of Bonn, Center for Development Research (ZEF) in its series Discussion Papers with number 44336.

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Date of creation: 23 Oct 2008
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Handle: RePEc:ags:ubzefd:44336
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  1. Rode, Julian & Hogarth, Robin M. & Le Menestrel, Marc, 2008. "Ethical differentiation and market behavior: An experimental approach," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 265-280, May.
  2. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521747387.
  3. Nimon, Wesley & Beghin, John C., 1999. "Are Eco-Labels Valuable? Evidence from the Apparel Industry," Staff General Research Papers 1514, Iowa State University, Department of Economics.
  4. Adamowicz W. & Louviere J. & Williams M., 1994. "Combining Revealed and Stated Preference Methods for Valuing Environmental Amenities," Journal of Environmental Economics and Management, Elsevier, vol. 26(3), pages 271-292, May.
  5. Taylor, Peter Leigh, 2005. "In the Market But Not of It: Fair Trade Coffee and Forest Stewardship Council Certification as Market-Based Social Change," World Development, Elsevier, vol. 33(1), pages 129-147, January.
  6. Bjorner, Thomas Bue & Hansen, L.G.Lars Garn & Russell, Clifford S., 2004. "Environmental labeling and consumers' choice--an empirical analysis of the effect of the Nordic Swan," Journal of Environmental Economics and Management, Elsevier, vol. 47(3), pages 411-434, May.
  7. O'Brien, Kelly A. & Teisl, Mario F., 2004. "Eco-information and its effect on consumer values for environmentally certified forest products," Journal of Forest Economics, Elsevier, vol. 10(2), pages 75-96, September.
  8. Basu, Arnab K. & Chau, Nancy H. & Grote, Ulrike, 2003. "On Export Rivalry And The Greening Of Agriculture - The Role Of Eco-Labels," Discussion Papers 18764, University of Bonn, Center for Development Research (ZEF).
  9. Arnab K. Basu & Nancy H. Chau & Ulrike Grote, 2006. "Guaranteed Manufactured without Child Labor: The Economics of Consumer Boycotts, Social Labeling and Trade Sanctions," Review of Development Economics, Wiley Blackwell, vol. 10(3), pages 466-491, 08.
  10. Loureiro, Maria L. & Lotade, Justus, 2005. "Do fair trade and eco-labels in coffee wake up the consumer conscience?," Ecological Economics, Elsevier, vol. 53(1), pages 129-138, April.
  11. Arnab K. Basu & Nancy H. Chau & Ulrike Grote, 2003. "Eco-Labeling and Stages of Development," Review of Development Economics, Wiley Blackwell, vol. 7(2), pages 228-247, 05.
  12. DeShazo, J. R. & Fermo, German, 2002. "Designing Choice Sets for Stated Preference Methods: The Effects of Complexity on Choice Consistency," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 123-143, July.
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