Chapter 30: Quantitative analysis of the impacts of fair trade
Fair trade is not only one of the most well-known bottom-up welfare responses to globalization, but also a leader in bringing questions about the role of business in society to the fore of public consciousness. Profit maximizing companies operating in domestic markets were reconciled with social optimum by the authority and action of domestic institutions. Global integration of money, labor and product markets altered this equilibrium since companies could immediately start to operate in a global scenario while rules and institutions remained domestic, thereby creating an imbalance of power between the two forces. The bottom-up action of socially and environmentally concerned citizens has helped restore this equilibrium, rewarding companies that avoid a race to the bottom in social and environmental criteria through fair trade and related initiatives. Fair trade is a multifaceted complex phenomenon. It sells a bundle combining traditional commodities with socially and environmentally responsible value chain features and educational content (Becchetti and Huybrechts 2008). Two of the most important and interesting effects of fair trade are: 1) the impact on producers’ wellbeing on the supply side and 2) the contagion effect of fair trade commodities on traditional profit maximizing sellers on the demand side. The latter is made possible by the behavior of socially responsible consumers who vote with their wallets and are willing to pay a premium for the ‘ethical content’ of fair trade products. The goal of our contribution is to quantitatively assess these two types of fair trade impact.
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