The Impact of Social Preferences and Information on the Willingness to Pay for Fairtrade Products

Abstract

This paper investigates the impact of social preferences and information about the value chain on the willingness to pay (WTP) for Fair-trade products. More specifically, the perceived social and economic benefits for Fair-trade farmers are analyzed in order to study whether altruistic preferences or information biases may shift consumers’ WTP. By means of an online survey, the empirical analysis is carried out for the coffee market. After grouping and comparing participants with respect to their WTP, social preferences, and demographic backgrounds, we find some evidence that consumers wrongly estimate, and lack information on, the financial benefits of Fair-trade certification that are eventually allocated to the coffee farmers. Large multinational enterprises often seem to make use of the Fair-trade system in order to gain financial and competitive advantages by “fair-washing” their products. This demonstrably leads to a higher WTP for an ethical premium that is not necessarily justified.

Keywords: Social Preferences, Willingness to Pay, Fair-Trade, Coffee Market, Tobit Model

JEL Classification: Q56, Q01, D83, D63, O13