Three essays on the economics of aid An analysis of social labeling and in-kind transfers

  • Cédric Duprez

Student thesis: Doc typesDoctor of Economics and Business Management

Abstract

This work proposes a theoretical analysis of two specific forms of aid to developing countries: social labelling and in-kind transfers. Social labels have developed rapidly over the recent years. In 2006, consumers worldwide bought 1,6 billion Euros worth of fair-trade certified products, 42 % more than the year before. Labels are particularly attractive as an instrument for concerned consumers in the North to compensate Southern producers for the cost of complying with some minimum labour requirements. In-kind transfers are one of the most common form of aid and account for a large part of the total Official Development Assistance given. In the first essay, a model is developed to investigate the impact of a label certifying the absence of child labour in the export production of the South. When most eligible producers in the South can obtain the label, its impact is considerably reduced by a displacement effect whereby adult workers replace children in the export sector while children replace adults in the domestic sector. The label is then unable to create a price differential between goods produced under the label and those produced without it. When only a small fraction of eligible producers have access to the label, so that the South exports both labelled and unlabelled production to the North, labelled producers generally gain while those without a label generally loose from the introduction of the label. Ex ante welfare may thus fall in the South if the probability of getting a label when one qualifies is small. The impact on child labour is in general ambiguous. The second essay investigates the impact of a label certifying high labour standards in the export production of the South. When the price premium from the North just covers the cost of adopting high labour standards in the South, it is shown that the welfare of Northern consumers increases iff the welfare of Southern producers decreases. Moreover, a label is also not Pareto-improving when only a small fraction of producers have access to the label, so that the South exports both labelled and unlabelled production to the North. When adopting high labour standards is not costly for producers, so that the label resembles to label certifying a wage premium, a label that rises the demand for Southern products is Pareto-improving. In the third essay, it is shown that one-side altruism can provide a rationale for over-providing in-kind transfers. In the model, a selfish recipient has an incentive to under supply effort and capital in order to manipulate the post-production transfers made by an altruistic donor. When effort is not enforceable by the donor, the donor’s best response to this Samaritan’s dilemma is to over-provide the recipient with a capital transfer in the pre-production period. This allows the donor to mitigate the dilemma, but it automatically creates an inefficiency since too much capital is invested. In the case the donor cannot tax the recipient, so that at equilibrium the donor pre-commits not to make a post-production transfer by over-providing the recipient with a pre-production transfer, transfers given fully in-cash would lead to an efficient outcome. A capital transfer is however chosen by the donor as it allows to reduce the total amount transferred to the recipient.
Date of Award12 Jun 2009
Original languageFrench
Awarding Institution
  • University of Namur
SupervisorJean-Marie BALAND (Supervisor), Jean-Marie CHEFFERT (President), Gani Aldashev (Jury), Karl-Ove Moene (Jury) & Rocco Machiavello (Jury)

Cite this

Three essays on the economics of aid An analysis of social labeling and in-kind transfers
Duprez, C. (Author). 12 Jun 2009

Student thesis: Doc typesDoctor of Economics and Business Management