Fair Trade: A 'Third Generation' Welfare Mechanism to Make Globalisation Sustainable

Becchetti LeonardoAdriani Fabrizio
CEIS Research Paper
Globalisation of product and labour markets has dramatically evidenced the market failure generated by the monopsonistic/oligopsonistic power of exporters dealing with unskilled workers (subcontractors). The absence of a global benevolent planner and unequal representation mechanisms in international institutions prevent the reduction of imbalances in the bargaining power between employers and unskilled workers. In a model of North-South trade we suggest that, under the existence of a share of altruistic consumers in the North, the effects of market imperfections and the absence of a global benevolent planner may be partially alleviated by a bottom-up welfare approach directly promoted by consumers of the final product. Our results also show that ethical concerns of consumers in the North might end up with reducing the welfare of workers in the South unless ethical concerned producers enter the market.
Number: 62
Keywords: monopsony, social responsibility, fairness
JEL codes: F02, F13, L31
Date: Friday, November 26, 2004
Revision Date: Friday, November 26, 2004