How Fairness-Consciousness Affects Consumers’ Willingness-to-Pay for Fair Product Attributes: Insights From an Advanced Estimation Approach

Abstract

Corporate social responsibility activities, such as a company’s adherence to fair trade (FT) standards, are known to affect consumers’ purchase behavior. In this study, we therefore investigate whether the inclusion of an FT label will pay off for companies by determining consumers’ willingness-to-pay (WTP) for the FT label attribute. In contrast with the recent literature, we use a model that simultaneously accommodates unobserved and observed consumer heterogeneity and estimates consumers’ individual WTP values directly in WTP space. We also focus on the German orange juice market and use empirical data from a conjoint choice experiment that enter an individual parameter hierarchical multinomial logit model. We found an average willingness-to-pay for an FT label of 36 Eurocents and identified several factors for WTP differences.

Keywords: Willingness-to-Pay, Fair Trade Label, Conjoint Choice Experiment, Bayesian Analysis, Hamiltonian Monte Carlo

JEL Classification: M31, C11, C35, Q56