On the economics of eco-labelling a case study for fair trade coffee in the UK
This thesis deals with economic tools for the analysis of eco-labelling and
its effects on the market. We, first, present an extensive revision of the
literature, summarising the discussion in the different organisations of the
international fora, and identifying the main areas of research.
Second, we revise and apply the hedonic method to study the demand for
fair trade/organic coffee, estimating that, ceteris paribus, the presence of the
'green' characteristic will increase the price of an average grade of coffee by
11.26%. This information is combined with the Quantity Based Demand
System (QBDS) model -- later compared with the Almost Ideal Demand
System (AIDS) -- to calculate the own and cross demand elasticities. The
results show that the demand for fair trade/organic coffee is more sensitive
to changes in prices than the demand for regular coffee or tea, i.e. the own
price elasticity of demand is higher. Hence, any demand side policy is
expected to have a greater impact on the demand for fair trade/organic
coffee than on the demand for regular coffee and tea. The AIDS model is
later applied to the tyre market in Hungary.
Third, a theoretical framework for the study of the effect that labelling
schemes have on the supply side of the market is introduced. Additionally,
some interesting information on fair trade coffee supply is presented.
Finally, the thesis provides a technique to analyse the effects and outcomes
of different economic policies, such as taxes or subsidies. The technique is
applied to a policy designed to promote fair trade/organic coffee; a subsidy
for the production of fair trade/organic coffee in producing countries that is
financed by small taxes on regular coffee and tea consumption in the UK.
The technique is further tested on the case of the tyre market in Hungary.