Socially Responsible Products: What Motivates Consumers to Pay a Premium?

The motivation to pay a premium for socially responsible products is partly an expression of consumer concern for the well-being of those involved in the production process. Thus, choosing to buy a product with a socially responsible label and choosing to donate to a charity are similarly motivated actions. While there is an extensive literature on the economics of charitable giving that examines motivations to donate as well as on the impacts of labeling on consumer demand, there is very little overlap between the two literatures. In this paper we attempt to bridge these two literatures by investigating whether consumers have heterogeneous motivations for paying a premium. We design a lab experiment that auctions coffee with hypothetical socially responsible labels that put different weights on in-kind vs. cash transfers. We find that those consumers who prefer to restrict most of the premium to be an in-kind transfer (and are classified as paternalistic altruists) are willing to pay a 52.5% price premium over standard coffee. Those who prefer that most of the premium is paid as cash to the recipient (strong altruists) are willing to pay a 42.5% premium. Finally, those who are indifferent to how the premium is spent by the recipient (warmglow givers) are willing to pay only a 19.2% premium. We discuss the implications of our results and future research directions