The Fair Trade movement: an economic perspective

Fair Trade (FT) products such as coffee and textiles are becoming increasingly popular with altruistic consumers all over the world. This paper seeks to understand the economic effects of this grassroots movement which directly links ethically-minded consumers in industrialised countries with marginalised producers in developing economies. We extend the Ricardian trade model and introduce a FT sector in developing South that offers a fair wage – the FT premium. There are indeed positive welfare effects from FT but those come at the expense of rising inequalities within South which are in turn a rational by-product of FT. The degree of inequalities depends on the specifics of the cooperative structures in the FT sector. Given the rigidities and inequalities FT introduces and rests upon, this form of alternative trade appears to be only sustainable as niche movement.

Inequality and Risk-Taking Behaviour

This paper investigates social influences on attitudes to risk and offers an evolutionary explanation of risk-taking by young low-ranked males. Becker, Murphy and Werning (2005) found that individuals about to participate in a status tournament may take fair gambles even though they are risk averse in both wealth and status. Here their model is generalised by use of the insight of Hopkins and Kornienko (2010) that in a tournament or status competition one can consider equality in terms of the status or rewards available as well as in initial endowments. While Becker et al. found that risk-taking is increasing in the equality of initial endowments, it is found here that it is increasing in the inequality of rewards in the tournament. Further, it is shown that the poorest will be risk loving if the lowest level of status awarded is sufficiently low. Thus, the disadvantaged in society rationally engage in risky behavior when social rewards are sufficiently unequal. Finally, as greater inequality in terms of social status induces gambling, it can cause greater inequality of wealth.

Unionism and Peer-Referencing

This study assesses the 'fair-wage-effort' hypothesis, by examining (a) the relationship between relative wage comparisons and job satisfaction and quitting intensions, and (b) the relative ranking of stated effort inducing-incentives, in a novel dataset of unionised and non-unionised European employees. By distinguishing between downward and upward-looking wage comparisons, it is shown that wage comparisons to similar workers exert an asymmetric impact on the job satisfaction of union workers, a pattern consistent with inequity-aversion and conformism to the reference point. Moreover, union workers evaluate peer observation and good industrial relations more highly than payment and other incentives. In contrast, non-union workers are found to be more status-seeking in their satisfaction responses and less dependent on their peers in their effort choices The results are robust to endogenous union membership, considerations of generic loss aversion and across different tenure profiles. They are supportive of the individual egalitarian bias of collective wage determination and self-enforcing effort norms.