The effects of Fair Trade when productivity differences matter , NiCE Working Paper 12-106
Nijmegen : NiCE
NiCE Working Papers
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SubjectNiCE Working Papers; Distributional Conflicts in a Globalizing World: Consequences for State-Market-Civil Society Arrangements
This paper uses a heterogeneous rms model to scrutinize Fair Trade s aim to help the most disadvantaged producers in developing countries. Incorporating important aspects of Fair Trade in a two-good heterogeneous rm model we show that only the most productive rms will join Fair Trade arrangements. Higher required pro- duction standards and entry costs make Fair Trade not viable for low-productivity rms, despite its advantage of o¤ering direct and secure distribution channels to international consumer markets. To overcome this selection e¤ect, Fair Trade or- ganizations may want to reconsider their selection criteria, focussing on a rm s productivity rather than its capacity to adhere to Fair Trade standards.
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