This paper investigates the impact of social preferences and information about the value chain on the willingness to pay (WTP) for Fairtrade products. More specifically, the perceived social and economic benefits for Fairtrade farmers are analyzed in order to study whether altruistic preferences or information biases may shift consumers' WTP. By means of an online survey, the empirical analysis is carried out for the coffee market. After grouping and comparing participants with respect to their WTP, social preferences, and demographic backgrounds, we find some evidence that consumers wrongly estimate, and lack information on, the financial benefits of Fairtrade certification that are eventually allocated to the coffee farmers. Large multinational enterprises often seem to make use of the Fairtrade system in order to gain financial and competitive advantages by "fairwashing" their products. This demonstrably leads to a higher WTP for an ethical premium that is not necessarily justified.
In distinct decision environments, consumers often fail to financially optimize their decisions. In liberalized electricity markets, consumers frequently do not optimize their electricity choices and stick with the default providers instead, despite the ability to choose among an increasingly large set of electricity suppliers and benefit from lower cost options. In this paper, we study the effect of different contextual features of the choice environment (i.e., default and active choice enforcement) and search costs (i.e., high and low) on the quality of electricity contract choices, with the help of a randomized controlled laboratory experiment. We provide evidence that the default contract rule lowers the decision quality compared to the active decision rule in both search cost environments. Default rules lower the quality of contract choices especially for the individuals with lower cognitive ability. Contrary to the expectations, we observe that the number of alternatives has no effect on the quality of electricity contract choices. Our findings have important implications for regulatory rule setting in the electricity market.
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