Undercover Economist

Slate columnist and economics prof. Ray Fisman has the scoop:

Hiscox and Smyth set up their shopping experiment at ABC Carpet and Home, an upscale department store in lower Manhattan. They picked two brands of towels and two brands of candles that had all been produced under fair labor conditions. First, the researchers recorded the weekly sales of the towels and candles without labeling any of them as fair-labor certified, measuring purchasing decisions based solely on taste. After a few weeks, Hiscox and Smyth spent the night at ABC sticking fair-labor labels on one brand of towels and one brand of candles. When the store reopened, sales of the now-labeled fair-labor towels jumped by 11 percent relative to sales of the unlabeled brand. For candles, the effect was even greater—an increase of 26 percent. A few weeks later, Hiscox and Smyth were back in the stockroom, marking up the prices on the labeled towels and candles by 10 percent. Quite remarkably, this increase made people buy even more towels and candles (a 20 percent increase for towels and 30 percent for candles).

The paper [pdf] is here. Now I feel bad about teasing Costa Coffee for charging a massive premium on fair trade coffee – something they no longer do, perhaps because I started asking them awkward questions about it.