Abstract
In the traditional welfare economics approach problems of negative externalities generated by productive units, inequality of opportunities and underprovision of public goods where tackled by the action of “enlightened” domestic institutions. This framework adequately represents the reality of the pre-globalisation economic system. In such system checks and balances among corporations, domestic institutions and trade unions ensured the joint pursuit of economic development and social cohesion, thereby avoiding socially disruptive levels of inequality. The global integration of labour and product markets has significantly weakened the bargaining power of domestic institutions and trade unions. Corporations can now operate globally, with the risk of generating a “race to the bottom” among domestic fiscal authorities and workers’ representatives in order to attract job opportunities and direct investment.
One of the effects of the introduction of fair trade goods is that of triggering socially responsible imitation of profit maximising sellers and distributors, thereby creating a consumer driven market mechanism which promotes equity and inclusion. To proof our claim we analyze the effects of a fair trader’s entry in a differentiation model where the profit maximizing incumbent may react in prices and social responsibility and its position on the segment of social responsibility needs to be advertised at some cost. We outline complementarity and substitution effects among relevant variables and explore incumbent’s incentives to cheat on his ethical stance. [JEL Classification: L11, L31]
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Becchetti, L., Gianfreda, G. (2009). Contagious “Social Market Enterprises”: The Role of Fair Traders. In: Lambertini, L. (eds) Firms’ Objectives and Internal Organisation in a Global Economy. Central Issues in Contemporary Economic Theory and Policy. Palgrave Macmillan, London. https://doi.org/10.1057/9780230274334_4
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