Consumers, firms, and public institutions increasingly take social and environmental concerns into account. Many consumers say they prefer sustainable products, firms promote greener production practices or fair trade, and public campaigns encourage people to think about the social costs of their choices. However, responsible behavior often involves a trade-off. Greener production or fair trade may be more expensive for firms, and responsible products may cost more for consumers. Thus, can awareness campaigns actually change what happens in markets when responsible choices are costly?
The study examines this question using a laboratory market experiment. Participants were assigned the role of either buyers or sellers. Sellers could choose between two products. One product was cheaper to produce, but created harm for a third party. The other product avoided this harm, but was more expensive to produce. Buyers then decided whether to buy a product, and from which seller. This setting allowed the researchers to study a market where responsible behavior was possible, but costly.
Before trading started, the researchers varied who could take part in a short conversation about the consequences of the market. In some markets, no one could discuss them. In others, only sellers could discuss them, only buyers could discuss them, or both buyers and sellers could take part. This design allowed the study to test whether conversation changed market behavior, and whether it mattered who was included.
The results show that conversation increased socially responsible trade only when both sides of the market took part.
The results show that conversation increased socially responsible trade only when both sides of the market took part. When both buyers and sellers discussed the consequences of their decisions, the share of responsible trades increased slightly. However, when only buyers or only sellers were included, behavior did not improve compared to markets where there was no discussion at all.
The study suggests that social responsibility in markets often requires coordination. Sellers need to believe that buyers are willing to buy responsible products, even if they are more expensive. Buyers need to believe that sellers are willing to offer those products in the first place. When both sides discuss the issue together, they may form shared expectations about responsible behavior. When only one side discusses it, those expectations are harder to create.
The findings also show that awareness and conversation have clear limits. Talking about the harm caused by irresponsible trade can help people agree on what the right thing to do is. However, this shared understanding was not always strong enough to make people give up money.
These findings have important policy implications. Campaigns that focus only on consumers or only on companies may not be sufficient. More effective interventions may need to involve all sides of the market, or combine awareness campaigns with other tools, such as incentives, labels, or regulation. Overall, the study shows that conversation can help make markets more socially responsible, but only when all relevant actors are part of it.
About the author
Iker Arregui Alegria is a PhD Candidate in Economics at Lund University School of Economics and Management. Ikers’s primary research interests is in the area of Applied Econometrics mainly within the fields of Labour Economics and Health Economics.
This research was undertaken as part of the author’s PhD studies at the Department of Economics at Lund University School of Economics and Management. Read more about the dissertation:
"When Culture Matters: Essays of Voting, Identity and Norms"
