Fair trade: a "third generation welfare" mechanism to make globalisation sustainable

Globalisation of product and labour markets has dramatically evidenced the market failure generated by the monopsonistic (oligopsonistic) power of buyers of labour (low value added products) from unskilled workers (subcontractors). The absence of a global benevolent planner and unequal representation mechanisms in international institutions prevent a reduction of this imbalance of bargaining power between employers and workers with traditional welfare approaches (such as minimum wage measures). In our model we show that, under the existence of an even minimal share of altruistic consumers in the North, the intervention of a global benevolent planner and the reform of international trade rules may be partially replaced by a (North-South consumers) Pareto improving bottom-up welfare approach directly promoted by consumers of the final product.