Fair Trade As A Public Good

Fair Trade as a public good is something that the majority would lay claim to being a good principle – not everybody, but most. If the stakes are high, fair trade may be hard to stick to, but even when they aren’t so high our competitive natures may well sneak in a little stretching of the rules.

A big question of course, is who sets the rules? Also setting rules has to go along with enforcement, else we end up in situations like our current banking game. The underlying difficulty appears to be how to get people to cooperate for the general good in unregulated trading.

An ideal situation for a lab experiment, as Eriksson and Strimling spotted, did it and wrote it up last week (1). They tempted 116 students with promises of the trading floor for a Public Goods game.

From their individual cubicles, these nascent big bankers played in groups of four for multiple round before being shuffled. At the beginning of each round, they were handed a wad of 10 tokens from the forgiving public and they then decided how much to join their three unseen friends in investing in that round. Every token invested made half a token extra and the total investment was split evenly regardless of the individual investment.

Anybody who clings to the principle of fair trade as a public good would dump in most of their cash knowing that if everybody did that, all get rich. What happened? A lot of participants took a get rich line and put in very little, planning to free load on the cooperating suckers Net result? Greed triumphs over sense and cooperation, dragging everybody down. Doesn’t it sound familiar?

That was the baseline. New games were set up where the meanies were revealed and rewards and punishments were voted on by the players. No, nirvana was not attained by these young financial warriors in that Swedish stronghold of learning.

But, and isn’t it good that there can always be a but. When high meanie limits were imposed to force investment and regulated with significant fines for non-compliance, fair trade as a public good flourished.

Strong, fair regulation, firmly imposed without fear or favor, may not have been the voting choice of the financial traders, but it ensured everyone had a goodly sized pie slice. There was some latitude, so there were some winners and others not quite so well off but no cubicle banking failed.

  1. http://www.plosone.org/article/info%3Adoi%2F10.1371%2Fjournal.pone.0040325

Leave a Reply