ABSTRACT
Asymmetric information is an important problem in fair trade, as in many other areas of economics. Sellers have better information than consumers about products not only when second-hand cars are sold, but also when goods are marketed based on their ethical content. Specifically, fair traders have an information advantage over concerned consumers about the fundamental intangible incorporated in their products: the social and environmentally responsible content of the value chain. This immaterial element is not an ‘experience good’—that is, a good for which repeated purchases and consumption can help consumers to bridge the information gap. For this reason, empirical analyses of fair-trade economics are useful to help consumers verify whether fair traders maintain their promises, so that the consumer’s willingness to pay for the social content of the product actually promotes the interests of marginalized producers. On the other hand, fair-trade importers need to know whether fair-trade principles are effective and whether these principles and the procedures by which they are put into practice need to be adapted to changing socio-economic conditions. In addition, fair traders want to know more about consumers’ preferences for their products. These needs can be satisfied by empirical research both on consumer demand for fair-trade products and on the impact of fair trade on producers. This chapter illustrates the main findings of both types of research.
