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"Fair Trade" as Market Failure?

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I know of no comprehensive empirical study of the welfare effects of the "fair trade" movement ā€“ that is, the voluntary efforts of retailers, such as Starbucks, to offer coffee and other goods with labels affirming that these goods were produced "fairly" rather than necessarily by the most economically efficient means. (Perhaps such a study, or studies, have been done; Iā€™m just unaware of them.)

Now I have nothing against any voluntary retailing efforts. If retailers (non-fraudulently) identify and label certain goods as being produced "fairly," and if consumers voluntarily choose to buy these goods, so be it.

Nevertheless, if "fair trade" in fact harms rather than helps workers in developing countries (as I think likely — see here [2]), then the success of the "fair trade" movement in the U.S. and other developed countries might be an instance of market failure.

That is, if enough well-intentioned consumers refuse to buy coffee produced by growers paying low market-clearing wages in places such as Guatemala and Ethiopia, then many people in these places who would otherwise secure employment paying them more than their next-best alternative will be denied these employment opportunities.

So, the good intentions of American consumers that lead them to pay higher prices for "fair trade" goods might well harm the very people these consumers aim to help. The reason for this unfortunate unintended consequence is that these American consumers lack sufficient information and economic understanding.

This paucity of information creates a market failure ā€“ where voluntary actions within the market generate a negative result that all involved would regret if they knew of it.

Oh well…..

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