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On the efficiency of fair trade

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  • 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.

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

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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 275-293, December.
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    Cited by:

    1. 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.
    2. 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, pages 1-23.
    3. 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.
    4. Simeoni, Francesca & Brunetti, Federico & Mion, Giorgio & Baratta, Rossella, 2020. "Ambidextrous organizations for sustainable development: The case of fair-trade systems," Journal of Business Research, Elsevier, vol. 112(C), pages 549-560.
    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. 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.
    7. 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.
    8. Mark Hayes, 2006. "The Economics of Keynes: A New Guide to The General Theory," Books, Post Keynesian Economics Society (PKES), number nggt.
    9. Andreas Graichen, 2008. "Fairtrade Labelling in a Bertrand Competition Model with Monopsony Power," Working Papers 050, Bavarian Graduate Program in Economics (BGPE).
    10. Leonardo Becchetti & Francesco Salustri, 2019. "The Vote with the Wallet Game: Responsible Consumerism as a Multiplayer Prisoner’s Dilemma," Sustainability, MDPI, vol. 11(4), pages 1-22, February.
    11. 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.
    12. Reinstein, David & Song, Joon, 2008. "Efficient Consumer Altruism and Fair Trade," Economics Discussion Papers 2936, University of Essex, Department of Economics.
    13. 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.
    14. Wilfred Dolfsma & Deborah Figart & Robert McMaster & Martha Starr, 2012. "Promoting Research on Intersections of Economics, Ethics, and Social Values: Editorial," Review of Social Economy, Taylor & Francis Journals, vol. 70(2), pages 155-163, June.
    15. 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.
    16. Alexander Kadow, 2011. "The Fair Trade movement:an economic perspective," Working Papers 2011_05, Business School - Economics, University of Glasgow.
    17. Leonardo Becchetti & Vittorio Pelligra & Francesco Salustri, 2018. "The impact of redistribution mechanisms in the vote with the wallet game: experimental results," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 51(4), pages 595-619, December.
    18. 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.
    19. Alex Nicholls, 2010. "Fair Trade: Towards an Economics of Virtue," Journal of Business Ethics, Springer, vol. 92(2), pages 241-255, April.
    20. 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, March.
    21. 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.
    22. 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.
    23. 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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