Efficient Consumer Altruism and Fair Trade Products

Abstract

Consumers have shown a willingness to pay a premium for products labeled as "FT" and a preference for retailers that are seen to be more generous to their suppliers/employees. A FT product is essentially a bundle of a base product and a donation to the supplier (e.g., a coffee farmer). An altruistic rational consumer will only choose this bundle if doing so is less expensive than buying the base product and making a direct donation. For FT to be sustainable either in a competitive equilibrium or in a monopolistic environment this bundling must yield an efficiency. This efficiency is generated in the following context. A supplier's investment reduces the retailer's cost or boosts the final product's quality, but this investment is not immediately observable and cannot be enforced, hence there exists a moral hazard problem. In this environment, the altruism of the consumer can facilitate 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 the supplier's incentive compatibility constraint. We assess our model in the context of the coffee industry.

Who cares about social image?

“…Our experiment uses fair trade products, understood as bundles of a base product with a charitable contribution as in Reinstein and Song (2012).…”

The relationship between young people׳s transit use and their perceptions of equity concepts in transit service provision

“…Evidence shows that customer loyalty, willingness to pay and purchase intentions are associated with perceived fairness, because consumers are willing to pay higher prices, associate higher quality and switch to products that are linked to social corporate responsibility and fair trade (e.g., Martin et al, 2009;Reinstein and Song, 2012; e.g., Lotz et al, 2013). Moreover, consumers are willing to punish firms for perceived unfair prices (Schein, 2002) and socially irresponsible behavior (Arredondo Trapero et al, 2010).…”

“…Growing numbers of consumers are increasingly concerned about fairness for themselves as well as others through socially responsible consumption (e.g., Arnot et al, 2006;Reinstein and Song, 2012;Webb et al, 2008). Evidence shows that customer loyalty, willingness to pay and purchase intentions are associated with perceived fairness, because consumers are willing to pay higher prices, associate higher quality and switch to products that are linked to social corporate responsibility and fair trade (e.g., Martin et al, 2009;Reinstein and Song, 2012; e.g., Lotz et al, 2013).…”

The Cultural and Political Intersection of Fair Trade and Justice

“…However when scaled up, Fair Trade's humble approach of helping others through carefully developed trade, becomes very different. With the tremendous growth of Fair Trade comes an increase in the power and influence of Fair Trade institutions and non-Fair Trade companies wanting Fair Trade market access (Reinstein and Song, 2008 Foods have been cited for unethical trade practices including labor law violations, human rights violations, and human trafficking in their non-Fair Trade product lines and corporate operations (Cowgill, 2012;Kaufman, Marie, & Man, 2012;International Labor Rights Forum, 2012;NLRB, 2008). Fair Trade participants question the appropriateness of Fair Trade certifiers enabling large corporations that do not embrace Fair Trade values within their own organizations to present themselves as Fair Trade supporters.…”