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1/8 Comment on Fair-Trade Labels Nov, 1, 2009 OECD Workshop on Societal Concerns Yanghoon Song Chungbuk National University Korea.

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Presentation on theme: "1/8 Comment on Fair-Trade Labels Nov, 1, 2009 OECD Workshop on Societal Concerns Yanghoon Song Chungbuk National University Korea."— Presentation transcript:

1 1/8 Comment on Fair-Trade Labels Nov, 1, 2009 OECD Workshop on Societal Concerns Yanghoon Song Chungbuk National University Korea

2 2/8 ‘Fair’ in what sense? A Simple Test – Are you Utilitaririan or Egalitarian? One gift, two boys Boy A: happy boy. Even a small gift will please him Boy B: unhappy boy. Even a big gift will not please him Insist on giving the gift to A, you’are Utilitarian. Otherwise, you’are Egalitarian Fair-Trade seems to base on Egalitarianism?

3 3/8 Implication of Value systems such as Utilitarianism and Egalitarianism on Economics: Different value systems lead to different welfare distribution Utilitarianism: (Harsanyi) Egalitarianism: (Rawls) Between the two: (Sen) Linear SWF u1 u2 L-shaped SWF u2 Non-linear SWF u2 Bridging the gap: What should happen will happen?

4 4/8 Fair to whom? Need to broaden the perspectives on who loses and who gains. Ex: Fair-Trade label will benefit producers in developing countries but will hurt consumers in developing countries. How about the others? Stakeholders Farmers Developing countries Developed countries Consumers Developing countries ?? Developed countries Focus of Fair- Trade label ?

5 5/8 Impact of Fair-Trade Labelling on Growth of Developing Countries Sales of Fair-Trade labelled foods grow fast Fair-Trade as a form of price distortion Price distortion leads to inefficient resource allocation and hinders efficeint structural adjustment  may slows down economic growth Bigger pie but relatively smaller bite for agricultural producers?

6 6/8 Limitation of Any Labelling – Information Asymmetry Providers of Fair-Trade labled food have more info. than consumers  info. asymmetry Ubiquitous problem for organic food, imported meat vs. domestic meat, for example Issue of enforceability : 3 measures to decrease info. asymmetry (1) increase the amount of fine for cheating (2) increase the prob. of being busted when cheat (3) decrease the price gap btwn the truly labelled and falsely labelled.

7 7/8 Limitation of Any Labelling – Information Asymmetry Can’t use (3) b/c prices are given In recent study, using Bayesian Game Theory and info. entropy, it is found that (1) and (2) work, but info. asymmetry can’t be lowered under certain level for Korean beef mkt For Fair-Trade labelling, (1) can’t be used b/c the organization is private. (2) could be used but may not be so effective Then, how cheating(or info. asymmetry) can be controlled for Fair-Trade?

8 8/8 Grains and Meat Products Tend NOT to be Fair-Trade Labelled, why? Fair-Trade labelled products such as handicraft, cotton and coffee happen to be labor-intensive or for a reason? Grain&meat production: more capital intensive, developed countries dominate the world grain and meat mkts? Any prospect for Fair-Trade labels on grain or meat products to be seen any soon?

9 9/8 Society is changing what it is asking of science, the role of science in decision making is quite complex. – Pielke 2007

10 10/8 Ballad of Distributional Considerations Craswell, 1989 What do economists study today? Anything anyone wants to pursue: Monarchs of all that they care to survey, Subjects beyond their dominion are few. Still, there is one that they often eschew, Leaving this caveat standing astride Much of what legal economists do: “All distributional issues aside.” Where is the person who acts in this way? Where the consumer or business who Works without caring who pockets his pay, Shunning discussion as strictly taboo? Search from Australia to Kalamazoo; Journey to anywhere humans abide: No one (in practice) could live by the view, “All distributional issues aside.” Still, the economists hold to their sway: Still the old litany echoes anew, Making conditional all that they say; Keeping them fixed in the orthodox pew. Open a page of some learned review; Look to the footnotes, and one will provide, “So-and-so proves that this statement is true, All distributional issues aside.” Envoy Sir, if I learned just a dollar or two Each time I heard that expression applied, Life would be bliss with the wealth I’d accrue (All distributional issues aside)

11 11/8 References Harsanyi, John (1975a) “Can the Maximin Principle serve as a Basis for morality? A critique of John Rawls theory”, American Political Science Review, 59, 594-606 Harsanyi, John (1975b) “Nonlinear Social Welfare functions: Do welfare economists have a special exemption from Bayesian Rationality?”, Theory and Decision, 6, 311-332 Harsanyi, John (1976), “Essays on Ethics, Social Behavior and Scientific Explanation”, Dordrecht, Holland/Boston-U.S.A., D. Reidel Publishing Company Rawls, John (1958), “Justice as fairness,” Philosophical Review, 67, 164ff Rawls, John (1971) “A Theory of Justice”, Harvard University Press, Cambridge Mass. Sen, Armartya K (1970) “Collective Choice and Social Welfare” Holden-Day, San Fransisco Sen, Armartya K (1973) “On Economics Inequality” Clarendon Press, Oxford Richard Craswell, “Ballade of Distributional Considerations,” Journal of Legal Education, vol 39, no 1 (March 1989), p 54.1989

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