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Fair Trade and Free Entry: Can a Disequilibrium Market Serve as a Development Tool?

Alain de Janvry (), Craig McIntosh and Elisabeth Sadoulet ()
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Craig McIntosh: University of California at San Diego

The Review of Economics and Statistics, 2015, vol. 97, issue 3, 567-573

Abstract: The Fair Trade (FT) coffee initiative attempts to channel charity from consumers to poor producers via increased prices. We show that the rules of the FT system permit this rent to be eliminated due to free entry and costly excess certification of output. Using data from an association of coffee cooperatives in Central America, we verify that expected producer benefits are close to 0 when we take into account the output that is certified but not sold as FT. Our results illustrate how free entry undermines the attempt at extending charity via a price distortion in an otherwise competitive market.

Keywords: fair trade; FT; fair trade coffee initiative; coffee; marketing; disequilibrium market; development tool (search for similar items in EconPapers)
JEL-codes: F12 D40 (search for similar items in EconPapers)
Date: 2015
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The Review of Economics and Statistics is currently edited by Amitabh Chandra, Olivier Coibion, Bryan S. Graham, Shachar Kariv, Amit K. Khandelwal, Asim Ijaz Khwaja, Brigitte C. Madrian and Rohini Pande

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