Money Well Spent? Operations, Mainstreaming, and Fairness of Fair Trade

Michael K. Lim, Ho Yin Mak, Seung Jae Park

Research output: Contribution to journalArticlepeer-review

8 Citations (Scopus)

Abstract

We examine the operations, fairness, and social implications of fair trade certified products. We consider the market for fair trade certified products, which may serve as a substitute to a regular product. A fair trade organization chooses standards for the certification, namely, the (unit) premium and minimum fraction of fair trade raw materials, to maximize the total premium transferred to farmers. We analyze the operations of various stakeholders in the fair trade value chain, as well as the role and social welfare of fair trade organizations with different philosophies. We characterize the firms’ entry decision in the fair trade market as well as the resulting market equilibrium. Furthermore, we examine the impact of mainstreaming, i.e., whether to allow large-scale plantations (often owned by large corporates) to be eligible for fair trade certification or not, which is one of the most discussed topics in the fair trade movement. We also identify the welfare allocation among various stakeholders in the value chain under different certification policies, and thereby address the fairness issue of the fair trade market as well as its resulting social welfare implications. Finally, we obtain a number of policy insights and suggestions to support this nascent marketplace.

Original languageEnglish
Pages (from-to)3023-3041
Number of pages19
JournalProduction and Operations Management
Volume28
Issue number12
DOIs
Publication statusPublished - 2019 Dec 1

Bibliographical note

Publisher Copyright:
© 2019 Production and Operations Management Society

All Science Journal Classification (ASJC) codes

  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Management of Technology and Innovation

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