Department of Economics
Working Paper Series
The Economics of Ethical Consumption
by
Martha A. Starr
American University
No. 2015-01
January 2015
http://www.american.edu/cas/economics/research/papers.cfm
http://www.american.edu/cas/economics/research/papers.cfm
Copyright © 2015 by Martha A. Starr. All rights reserved. Readers may make verbatim copies
of this document for non-commercial purposes by any means, provided that this copyright
notice appears on all such copies.
2
The economics of ethical consumption
Martha A. Starr
American University
January 2015
Abstract
Although there has been little economic research on ‘ethical consumption’ in a general sense, work on its
various aspects is growing. This paper reviews economic research on ethical consumption, examining both
demand- and supply-side aspects. It is argued that the most promising way to see ethical consumption
through an economic lens is via models with heterogeneous consumers, in which some have strong intrinsic
motivation to adopt ethical-consumption practices, others will adopt if they perceive a practice to be
becoming a social norm and its extra costs are moderate, and others still will be impervious to it.
Implications for the spread of ethical consumption and its ability to affect change are considered.
Keywords: ethical consumption, consumption ethics, socially responsible consumption, corporate social
responsibility, sustainable consumption, consumer behavior, pro-social behavior, consumer economics
JEL Codes: E21, D11, D12, A13, A12, Q5
___________________
Please address correspondence to: Martha A. Starr, Department of Economics, American University, 4400
Massachusetts Avenue NW, Washington, DC 20016. Email: mstarr@american.edu. Phone: 202-885-3747.
3
1. Introduction
‘Ethical consumption’ refers to practices that consumers engage in, in the interest of connecting their
consumption patterns to their ethical, environmental and social values. These practices may include:
buying goods and services perceived by the consumer to have positive ethical, environmental, or social
attributes; not buying goods and services perceived to have negative ones; and altering patterns of
consumption, transportation, energy and water use, recycling, or other aspects of lifestyle in ways the
person takes to be ethically, environmentally or socially preferred. As such, ethical consumption
encompasses a wide range of practices, from bringing reusable bags to the grocery store, to buying fairtrade or sustainably-produced foods, to switching from driving to biking to work. It also includes consumer
boycotts.
To date, there has been little economic research on ethical consumption in this general sense. Searching
the ProQuest Central electronic database for work on “ethical consumption” returns over 450 peerreviewed studies. But in the part of the database that indexes economic research (EconLit), only 13
studies return. To some extent this overstates the extent of the discipline’s neglect or disinterest in
ethical dimensions of consumption and lifestyle decisions because there is a good amount of research on
specific dimensions of ethical consumption, including organic and local foods, recycling, and
environmentally-conscious transportation choices.1 There has also been a boom in experimental economic
research on pro-social behaviors, which has inspired new interest in individual decisions that may in part
reflect pro-social concerns.2 Still, the relative neglect of ethical consumption in economic research is a
missed opportunity: Because ethical consumption arises within the market economy and often aspires to
reshape it, economics is an obviously important lens through which to view it.
This chapter provides a review of economic research relevant to characterizing ethical consumption from
both demand-side and supply-side perspectives. It begins with the traditional analysis of individual
consumers, whose purchases are so small relative to total sales in the markets in which they buy goods
1
Beatty, Berck, and Shimshack (2007); Kahn (2007); van den Bergh (2008); Brekke, Kipperberg, and
Nyborg (2010); Gallagher and Muehlegger (2011); He and Bernard (2011); Viscusi, Huber, and Bell
(2012); and Liu (2014).
2
Valuable references include Fehr and Fischbacher (2002), Camerer and Fehr (2004), and Meier (2007)
4
and services that they cannot expect their individual purchasing patterns to affect what companies
produce and how produce it. We explore three reasons why, in this framework, consumers might
nonetheless choose to consider ethical, environmental or social factors when deciding what goods or
services to buy. These are: ‘warm glow,’ social image, and hedonic attributes of ‘ethically preferred’
goods. We then go on to outline a conceptual framework that goes beyond the standard approach,
incorporating pro-social motives, social norms, and social networks. In a nutshell, the model posits that
consumers have heterogeneous motivations for engaging in a given ethical practice, with a first group
having strong intrinsic motivation for engaging in the practice whether or not anyone else does, a second
group will adopt the practice if it is not too costly and they see it starting to become a social norm within
their social networks, and a third group that evaluates the practice strictly from the point of view of selfinterest. A good amount of research with findings consistent with this framework is summarized. Then the
third section of the paper covers three supply-side shifts that have some relationship with ethical
consumption, including fair-trade networks, the growing sector of small businesses that cater to and aim
to reinforce ethical-consumption practices, and corporate social responsibility. The paper ends with some
reflections on what the conceptual framework and empirical evidence imply for further research on
ethical consumption, and for what we should think of its ability to affect change.
2. Conceptualizing the demand side
The individual
Standard economic frameworks conceptualize consumers as small autonomous agents who go out and buy
things they want or need in large competitive markets for goods and services. The sheer size of these
markets is so great relative to buying power of individual consumers, that it is assumed the latter always
take prices and other characteristics of products on the market to be given. 3 In essence, the consumer
3
As the top-selling introductory economics textbook puts it, “Economists use the term competitive
market to describe a market in which there are so many buyers and so many sellers that each has a
negligible impact on the market prices. A seller has little reason to charge less than the going price,
and if he charges more, buyers will make their purchases elsewhere. Similarly no single buyer … can
influence the price … because each buyer purchases only a small amount” (Mankiw 2014: 66). Markets
5
may wish that farmers who grow the beans going into her morning coffee received a living wage for their
work, but because her coffee purchases are a tiny drop in the ocean of total spending on coffee, whether
she buys fair-trade coffee or a standard alternative cannot be expected to have any effect on the extent
of social justice in the coffee supply chain. Thus, in the standard economic framework, the idea of “being
the change you want to see in the world” via consumer behavior is naïve or quixotic, as there is no scope
for a single individual’s behavior to influence aggregate outcomes.
Of course there are reasons for doubting that individuals should be seen in this disconnected, atomistic
way, as will be discussed below. But this apparent contradiction between the individual’s aspiration to ‘do
good’ and her powerlessness at the aggregate level has caused much discussion within the economics
discipline as to why people behave in apparently pro-social ways if they cannot expect their behavior to
affect aggregate outcomes. Three factors have been explored in this respect, all rooted in satisfactions
that individuals could receive from behaving in apparently ethical ways.
First is the idea of ‘warm glow’. The term was originally used by Andreoni (1989, 1990) to explain why
self-interested individuals would make charitable donations, even if any tangible benefits they would
receive from giving (e.g. tax breaks, invitations to social events, etc.) were worth much less than what
they gave. The warm glow is the psychic benefit the person receives from ‘doing good’; in the context of
ethical consumption, warm glow is the subjective benefit that accrues to the person from taking an action
he views as having good ethical or social properties. An implication of warm glow is that, even if there is
low scope for the person’s actions to benefit others, he may do it anyway because he gets intrinsic
satisfaction out of ‘doing the right thing’. While this notion can be invoked to explain why people buy
items that have an ethical aspect without actually doing any good (like buying hybrid luxury sports-utility
vehicles with very low gas mileage), it calls attention to the fact that many people who adopt ethicalconsumption practices view what they do as intrinsically meaningful and valuable, so that maintaining
those practices is not contingent on them having an effect (Venhoeven, Bolderdijk and Steg 2013).
for consumer goods are not always highly competitive on the supply-side, but vast numbers of
consumers in consumer-product markets guarantee that they are on the demand-side.
6
A second and somewhat related issue is social projection. Some aspects of ethical consumerism are small
and done within the home, so they may never be noticed by others (e.g. taking a shorter shower, turning
lights off when leaving a room, using cloth rather than paper towels, etc.). But others are done in ways
that are readily noticeable by others, raising the question of whether they are done in part for a social
identity the person enjoys projecting (Pedersen 2000). The classic example is the distinctive-looking
Toyota Prius hybrid vehicle. Sales prices for the Prius have been consistently above those of otherwise
similar hybrid vehicles, such as the Honda Accord which has been available in both hybrid and non-hybrid
models.4 This suggests that part of the price premium on the Prius reflects its value for signaling green
identity – a phenomenon that has been referred to as “conspicuous conservation” (Sexton and Sexton
2014). But here too it is not entirely obvious that people pay extra for driving a Prius because they want
others to think highly of them; it is at least plausible that they hope that driving a recognizably hybrid
vehicle increases the salience of messages about environmental sustainability to others and so may help to
promote those changed views. Either way, research here suggests that it does sometimes matter to people
to be able to signal to others that they have aligned their consumption with their social and ethical
values.5 From the point of view of achieving aggregate impact, this is potentially a problem as some of the
most environmentally-significant behaviors are not matters of social-projection (e.g. household energy
consumption) (Gatersleben et al 2002).
The third issue is that some of the goods and services thought of as ‘ethical’ have other attributes that
may make them more desirable than conventional goods. Notable here are issues related to food, where
ethically-preferred items like organic, local or sustainably-grown produce may have attributes that make
them preferred over conventional products anyway (better taste, freshness, or appearance, and perceived
health advantages).6 There is a substantial literature in economics that tries to quantify the value people
place on food attributes such as organic, local or sustainably-grown designations or fair-trade
certification, either by trying to back the premium out of price wedges between ethically-preferred and
conventional products or by trying to elicit people’s preferences for different food attributes via
4
According to Sexton and Sexton (2014), the price premium for the Prius that has ranged from $430
and $4200, depending on geographic location.
5
Dastrup et al (2012) have a similar finding for homes with solar panels.
6
See Johnston and Szabo (2011).
7
experimental or survey methods (Maguire, Owens, and Simon 2004; Batte et al. 2007; Chang and Lusk
2009; He and Bernard 2011). While research is clear that foods with preferable environmental or ethical
attributes often command price premia over conventional equivalents,7 premia vary a good amount across
types of goods and tend to be more appreciable for goods that also have superior hedonic attributes (e.g.
taste, freshness, appearance).8 Again, this can lead to questions about whether ethical considerations are
‘really’ the cause of rising sales of alternative foods (organic, local, sustainably-produced, non-GMO,
etc.), versus standard issues of consumer preferences and tastes. 9 The trouble with that argument is that
people who buy goods with ethical or environmental attributes vary in their reasons for buying them,
where social influences on their consumption patterns may be as important as the satisfactions they
realize as individuals from consuming different goods. It is to this issue that we now turn.
The social
An important shortcoming of economic analysis of ethical consumption focused on individual preferences
is its neglect of social variables and processes involved in its rise and spread. As in other social sciences,
the economics discipline has increasingly recognized the potential importance of social networks and
relationships in shaping behaviors and outcomes of individuals.10 Social networks can be important as
sources of information and ideas, as reserves of social and financial support, and as mechanisms for
relating and enforcing a community’s social norms. This suggests the possibility that different people may
follow different paths into ethical-consumption behaviors, with some seeking them out or developing them
‘on their own’ and others picking them up from others within their social networks.
7
For example, studies find that consumers are willing to pay a premium of 5-20% for coffee procured
under fair-trade arrangements (e.g. Loureiro and Lotade, 2005; De Pelsmacker et al., 2005; Arnot et
al., 2006).
8
Thus, for example, He and Bernard (2011) document that organic and non-GMO premia tend to be
higher for fresh produce than they are for processed foods. For additional discussion, see Loureiro and
Hine (2002); Yiridoe, Bonti-Ankomah, and Martin (2005); Chang and Lusk (2009); and references
therein.
9
Thus, for example, Johnston and Szabo (2011: 303) argue that “shopping at venues like [Whole Foods
Market] is primarily motivated by traditional consumer pleasures, even for politicized consumers, a
finding that poses serious limitations for a consumer-regulated food system.”
10
Jackson (2011) provides an overview.
8
In an important set of papers, Brekke, Nyborg, and coauthors laid out a conceptual framework for
understanding how ethical-consumption behaviors spread within social networks. 11 The framework is
consistent with Elster’s (1989) understanding of the social dynamics of collective actions. It is also
consistent findings from experimental research on heterogeneities across people in pro-social behaviors
(Fehr and Fischbacher, 2002; Camerer and Fehr, 2004; and Meier, 2007). There are three groups of people
in the model. There is a first core of people whose rationales for adopting an ethical-consumption practice
come from its intrinsic value. For example, they may get satisfaction from keeping their behavior aligned
with their own values, and/or they may get disutility from actions that impose harms on nature, wildlife,
future generations, or disadvantaged people. But their decisions to adopt the behavior do not depend
whether others are doing it, nor on whether they expect the collective action to have concrete effects.12
In this sense, they can be described as duty-bound or ‘Kantian’, as they will engage in the behavior
whether or not it has social returns.
A second (and usually larger) group consists of people who have lower intrinsic motivations for engaging in
the behavior, but who will tend to adopt it if the monetary and time costs are reasonable and they see
others within their social networks doing it. A central issue for this group is that they do not like to feel
that they are violating social norms or failing to help uphold them; they prefer not to violate social norms
both because it would lower their own self-regard and/or because they do not want to lose the good
regard of others. People in this group may see a given ethical-consumption practice as worthy, but they
may not adopt it until it seems to be becoming common in their social network and/or until its costs in
terms of time and money fall below the gains they would experience from bringing their behavior into line
with the new norm.13 Because this group’s propensity to adopt an ethical-consumption practice is
positively affected by the share of others within their network who have adopted it, these people may
11
See Brekke, Kverndokk, and Nyborg (2003); Nyborg, Howarth, and Brekke (2006); and Brekke,
Kipperberg, and Nyborg (2010).
12
This is not to say that traditional factors like price, income, convenience and time are irrelevant to
such consumers, just that the intrinsic satisfactions they get from following the practice are high
relative to other consumers, while satisfactions from following it because doing so upholds social norms
are relatively low.
13
See Matsumoto (2014) on the subject of opportunity costs of pro-environmental activities. Muster
(2011) investigates the role of workplace practices in promoting sustainable-consumption norms.
9
respond little to early policy efforts aiming to get them to change their behavior, but then seem wellresponsive if the same policy effort is launched after the behavior has spread. Finally there is a third
group of consumers whose behaviors in the domain of interest are well-described by the standard
paradigm of the self-interested consumer, with standard considerations like prices, tastes, income,
convenience, etc. explaining what they do.
This framework suggests that the extent to which any given ethical-consumption practice or behavior
becomes widespread will depend on a number of factors. One is the size of the first group relative to the
second and the extent to which the two are tied together in the same social networks. If the first group is
quite small or has low densities of social connections to the second group, chances for the behavior to
spread out of the niche of committed consumers are relatively low. Another is the extent to which people
in the second group view the social rewards of adopting the behavior as large enough to offset its extra
costs. Again the problem arises here that some ethical behaviors are visible (e.g. bringing re-usable bags
to the grocery, driving a Prius, biking to work) while others are less so (e.g. turning off lights, buying
energy-efficient home appliances). As a result, people may be more likely to perceive new norms related
to visible behaviors to be spreading within their social networks, and to change their behaviors in these
sorts of domains, even though the less-visible types of behaviors may be environmentally more significant
(Eriksson 2004). But at the same time, because time and money costs do play a role in the behavior of the
second group, there is scope for accelerating adoption of ethical-consumption behaviors within it via
projects that lower the costs, such as establishing curbside recycling, promoting bike-share programs,
encouraging farmers’ markets, etc. Finally, there is the issue of how large the third group is relative to
the first two in any given consumption domain. For example, because many U.S. communities were
established in the era of cheap gas and abundant land, they have spatial organizations that limit people’s
ability to substitute out of driving to work in private vehicles towards greener modes of transportation. In
such cases, the shift to green transportation in the core group of people with high intrinsic motivation may
simply have too little potential to make a dent in the community’s carbon emissions, underlining that in
10
some domains government regulations and programs may be the only way of significantly tackling the
problem.14
While the richness of this sort of framework for understanding the spread of ethical consumption makes it
difficult to ‘test’ in the usual sense, the framework captures a number of common empirical findings on
ethical-consumption issues. Notably, it is widely recognized that there is a lot of heterogeneity in people’s
attitudes and behaviors in given domains of ethical consumption, with people having good knowledge,
clear values, and behaviors aligned with their values tending to be a minority and larger pools being more
socially influenced in their uptake of ethical-consumption behaviors. For example, the Co-operative Bank’s
2007 Ethical Consumerism Report (2007: 6) identified 6% of the U.K. population as “committed ethical
consumers” at that time, meaning they shopped weekly for ethical-consumption items; this share was up
from 5% in 2003. Another 11% of the population was identified as “regular ethical consumers”, meaning
they bought ethical products at least once a month; this group was up from 8% in 2003. As examples of
research studies identifying minorities of informed and committed consumers for whom intrinsic
motivations to consume ethically may be strong, Kahn’s (2007) study of Californian consumers identifies a
“green” subset who are concerned about the environment and more likely to take public transit or drive a
hybrid vehicle; they also have lower average gas consumption. In a semi-experimental study using Swedish
subjects, Lindman and Söderholm (2013) find that people expressing greater personal sense of
responsibility for climate change have higher willingness to pay for carbon-emissions allowances.
Other studies have examined the role of social norms in promoting ethical-consumption behaviors. In a
study using data from a broad multi-country sample, Videras and Owen (2006) found that people who had
a moderate sense of social responsibility had higher life satisfaction when they conformed to social norms,
while for those with a strong sense of social responsibility conforming to norms caused disutility. Using
data from the U.S. General Social Survey, Starr (2009) found that people were more likely to buy ethically
when they lived in areas where ethical buying was more common, ceteris paribus. Schulz (2002) found
that people’s likelihood of recycling rose with the share of their neighbors they believed to be recycling.
14
Nyborg, Howarth, and Brekke (2006) discuss potential interactions between government taxes and
subsidies and the spread of pro-social norms.
11
Abbott, Nandeibam, and O'Shea (2013) found social norms related to recycling to be more important than
“warm glow” in explaining recycling patterns in U.K. communities. Carlsson, García, and Löfgren (2010)
found that that willingness to pay a premium for fair-trade coffee is in part a function of people’s
perceptions of the choices of others, implying that they attach value to conforming to social norms. Still,
the sense that a given ethical-consumption practice is spreading in one’s social network may not tilt
people towards adopting it themselves, if its costs and inconvenience remain high relative to social and
intrinsic rewards (Viscusi, Huber, and Bell 2011).
3. Understanding the supply side
Seen through an economic lens, ethical consumption cannot be only about the demand side of product
markets, because shifts in consumption towards ethically, environmentally and socially preferred products
require parallel shifts on the supply side. Recent years have seen a substantial amount of research in
business economics, environmental and ecological economics, business ethics, and financial economics
that examines businesses’ incentives to shift what they produce and how they produce it in sociallyresponsible and/or environmentally-sustainable directions.15 While a full review of this research is beyond
the scope of this paper, here I talk about three sets of supply-side changes that pertain most closely to
issues of ethical consumption and the question of whether it can “make a difference” in terms of
consumers’ ethical, environmental, and social concerns.
The first set of changes, which both promoted and in turn has been stimulated by the ethical consumer
turn, is the emergence of fair-trade networks.16 In brief, fair-trade networks are alternative supply chains
that connect third-world farmers and first-world consumers via arrangements in which farmers (a) receive
guaranteed minimum prices that give them a decent livelihood, (b) organize into cooperatives that serve
as efficient vehicles for disseminating information and inputs and for processing and selling output, (c) use
sustainable farming methods, and (d) get access to credit. A growing body of economic research examines
15
See, for example, Thompson and Doherty (2006), Krane et al. (2008), Kitzmueller and Shimshack
(2012), and Borgaza (2013).
16
For a recent overview, see Dragusanu, Giovannucci, and Nunn (2014).
12
the extent to which fair trade has benefited poor farmers, with the balance of evidence so far suggesting
that fair-trade projects do tend to meet their objectives of raising and stabilizing farmers’ incomes and
promoting sustainable farming methods, relative to what they would have otherwise been (Drausanu,
Giovannucci, and Nunn 2014).
At the same time, it is an ongoing concern that fair-trade arrangements, while continuing to expand at a
good rate, remain a small part of the global supply chain, with the number of farmers and workers
participating in fair trade estimated at 1.4 million in 2012 (Fairtrade International 2013). From an
economic perspective, issues that may potentially limit the ability of fair-trade networks to come to
occupy a more substantial role in global supply chains for primary commodities include: (a) shortage of
resources for setting up and maintaining alternative supply chains that run on a different logic from
standard primary-commodity production and exports, and (b) interest in fair-trade products by first-world
consumers that is not sufficiently widespread or strong to cause a changeover in the dominant logic. In
terms of the heterogeneous-consumer model laid out above, these two issues imply a possibility that
commitment to buying fair-trade products over conventional ones may not spill much beyond the core of
consumers who feel strongly about buying fair-trade, with the broad swath of mainstream consumers not
perceiving that they too should buy fair trade because so many others are.
A second set of changes concerns the emergence of an eclectic subsector of businesses set up in part to
advance and reinforce the growth of ethical-consumption patterns. Often small and driven by the values
of their owners and other principals, these types of ethical-consumption businesses aim to expand the
supply of goods and services needed for lifestyles and consumption patterns to become more sustainable,
while providing decent livelihoods for their principals and perhaps enriching community life. Common
businesses in this category include sustainable local farms; restaurants emphasizing cuisine based on local,
organic, and/or sustainable produce; food-buying clubs that deliver organic, sustainably-farmed produce
and/or organic and cruelty-free animal products; fair-trade craft shops; thrift shops aiming to increase the
use people get out of mass-produced clothing and household items; sustainable-tourism outfits; and social
13
businesses set up in part as vehicles for employing or providing job training to disadvantaged groups, or for
generating revenues for charitable work.17
Casual observation suggests that businesses having ethical dimensions mixed in with their business goals
are cropping up increasingly, perhaps especially in urban neighborhoods that have notable concentrations
of people inclined towards ethical consumption. But it is difficult to quantify or substantiate that this is a
notable trend, in part because such businesses are not well-differentiated from standard businesses in
business-data sources; some are specifically ‘social businesses’ or ‘social enterprises’ that seek to operate
differently from conventional for-profit businesses, but others are more like traditional small businesses
where the owners hope their vision for the business will cater to and enrich consumption choices in the
community, while earning them a good income.18
It is also an open question how much potential for growth there is in this subsector. Like all new
businesses, those in part motivated by environmental, social or ethical concerns face relatively high
failure risks, as it is no easy task to build up a good volume of regular customers in good time, while
keeping quality of output consistent, operating costs moderate, and prices not too far above massproduced equivalents.19 But again, much depends here on the extent to which habits of frequenting such
businesses spread beyond the core of people who feel strongly about ethical consumption, and into the
pool of people who will adopt ethical-consumption practices as they see them becoming a norm within
their social networks, as that will determine the extent of demand to which such businesses have access.
Finally, in the past 15 years, large corporations have increasingly taken on goals of operating in more
socially or environmentally responsible ways, as well as reporting their activities in these respects.
According to a KPMG global survey of 4,100 companies around the world (the 100 largest companies in 41
countries), about 70% issued an annual report on their corporate social responsibility (CSR) in 2013, up
17
Inwood et al. (2009) discuss growth of restaurants emphasizing local foods, while Alkin (2012)
analyzes motives of suppliers at farmers’ markets. Hills et al. (2013) studied commercial bakers and
the re-localization of wheat in Washington State. For discussion of social enterprises, see Borzaga and
Defourny (2001), and Borzaga (2013).
18
Thompson and Doherty (2006) discuss the eclectic character of businesses with goals that are in part
social or ethical.
19
Liu and Ko (2012) discuss managerial capabilities among charitable thrift stores in the U.K.
14
from 64% in 2011; of the world’s 250 largest companies, 93% reported on their CSR activities in 2013
(KPMG 2013). While CSR is a complex topic on which much has been written, economists have tended to
doubt that corporations ‘do good’ ethically for any reason other than to ‘do well’ financially (Kitzmueller
and Shimshack 2012).20 This is in part because corporate executives have a fiduciary responsibility to their
shareholders to maximize the value of the firm; as a result, executives who try to ‘do good’ without at the
same time trying to do as well as possible would be abrogating this responsibility, and so would be likely
to be reined in or displaced. This is the classic view of Milton Friedman (1970), who argued that “The
social responsibility of business is to increase its profits.” 21
The central question of interest here is whether CSR has much to do with ethical consumption, and if so
how. On one hand, the view that corporations ‘do good’ primarily as a matter of ‘doing well’ is certainly
an important part of the bridge between the two. As defined above, ethical consumption entails favoring
goods and services with ethically-desirable properties and disfavoring those without. In consumer-goods
markets where a good amount of competition takes place along dimensions of product characteristics
more so than price, changes in consumption patterns that boost the sales of companies selling ethicallyfavored products will spur those with lagging sales to copy the strategies of their competitors. For
example, in the U.S. the success of the Whole Foods organic supermarket chain in the 1990s and early
2000s spurred conventional groceries to expand their offerings of organic and local products, so much so
that these have become commonplace. Similarly, booming sales of the Toyota Prius have prompted other
automakers to work on developing their own distinctive-looking hybrid vehicles, as offering existing
models in standard or hybrid forms has proved to be insufficient to lure ‘green buyers’ away from the
Prius. These examples suggest that pro-social shifts in consumer spending can at least at times cause the
idea of ‘being the change you want to see in the world’ to have real effects.
20
The economics literature also doubts that it is efficient for corporations to devote resources to social
goals, as they would not be expected to have a comparative advantage in producing public goods
(goods underprovided by the market). See, e.g. Kitzmueller and Shimshack (2012) and Lilley and Slonim
(2014).
21
Note that Friedman did not argue that executives ought to be behave without regard to ethics, just
that their own ethics should not interfere with their primarily goal of advancing the objectives of
shareholders, “which generally will be to make as much money as possible while conforming to the
basic rules of the society, both those embodied in law and those embodied in ethical custom” (p. 33).
15
At the same time, the voluntary character of corporate social responsibility means that companies can
pick and choose which ethical, environmental or social goals to include their CSR strategies, where they
presumably pick those goals which they expect to benefit them most and cost them the least.22 Thus, for
example, retail giant Wal-Mart has opted to stress sustainable energy use and improving its offerings of
organic and healthy foods, while doing little about low wages and lack of benefits for its retail employees,
or its shaky commitment to working conditions in the plants of its overseas suppliers. As a result, it is
unclear whether ethical shifts in consumption patterns have potential for substantially altering patterns of
investment, production, and employment in the corporate economy. This could well imply that achieving
societal goals of shifting economic activities all the way onto sustainable trajectories may depend on
government policies and regulations, if ethical-consumption behaviors alone have insufficient force.23
4. Concluding thoughts
In sum, a growing body of economic research suggests that, contrary to the view of the self-interested
isolated consumer who would only adopt ethical-consumption practices only if its personal satisfactions
were sufficiently high to cover its extra monetary and time costs, people have varied reasons for making
consumption and lifestyle choices in part with regard to ethical, environmental and social considerations –
where the sense that a given practice is becoming a social norm within their social networks may be part
of what tilts them towards adopting the practice themselves.
While a good amount of economic research on ethical-consumption practices is consistent with this sort of
model of heterogeneous consumers embedded in social networks, it is largely suggestive than rather than
conclusive, and leaves open many questions about whether ethical-consumption practices have potential
to become widespread and/or to affect the kinds of changes its proponents visualize. Notably, the model
suggests that if the group of consumers with strong intrinsic motivations to engage in a given ethicalconsumption practice is small, the group is only weakly socially connected to the broader consumer
22
Jaffee and Howard (2010) elaborate on this argument with respect to agri-food initiatives in the
domains of organic and fair-trade foods.
23
Kitzmueller and Shimshack (2012).
16
population, and the extra costs of the practice are relatively high, the practice would not be likely to
spread outside of its initial core. This could well be an area where government policies or programs would
be needed to affect a positive change. In contrast, if the group of intrinsically motivated consumers is
itself growing, this group is well-connected socially to other consumers, and the costs of the practice are
declining due to robust supply-side response (e.g. large supermarkets starting to carry organic and local
produce), there would be reason to expect the practice to spread well into the population. Still, the
extent to which this spread could ‘make a difference’ in terms of the ethical, environmental or social
issues at stake would remain to be seen; for example, increased purchasing of organic produce may not
improve environmental sustainability if at the same time the types of product brought are tending to
increase food miles. This underlines the problem that, although we understand given consumption
practices to be ‘ethical’ if people who have adopted them believe that they are, there is no assurance
that behaviors individuals adopt for ethical reasons map into social outcomes with good ethical properties.
This in turn goes to show how much more research needs to be done to understand the origins, social
dynamics, and effects of ethical-consumption practices for the ultimate desiderata that people care about
in the ethical consumption domain.
17
Bibliography
Abbott, A., S. Nandeibam, and L. O'Shea (2013) ‘Recycling: Social norms and warm-glow revisited,’
Ecological Economics, 90: 10-18.
Alkon, A. H. (2008) ‘From value to values: Sustainable consumption at farmers markets,’ Agriculture and
Human Values, 25(4), 487-498.
Andreoni, James (1989) ‘Giving with Impure Altruism: Applications to Charity and Ricardian Equivalence,’
Journal of Political Economy, 97(6): 1447-58.
_____________ (1990) ‘Impure Altruism and Donations to Public Goods: A Theory of Warm Glow Giving,’
Economic Journal, 100(401): 464–477.
Arnot, Chris, Peter C. Boxall, and Sean B. Cash (2006) ‘Do Ethical Consumers Care About Price? A Revealed
Preference Analysis of Fair Trade Coffee Purchases,’ Canadian Journal of Agricultural Economics 54(4):
555–65
Batte, M. T., N.H. Hooker, T.C. Haab, and J. Beaverson (2007) ‘Putting their money where their mouths
are: Consumer willingness to pay for multi-ingredient, processed organic food products,’ Food Policy,
32(2): 145-159.
Beatty, T. K. M., P. Berck, and J.P. Shimshack (2007) ‘Curbside recycling in the presence of alternatives,’
Economic Inquiry, 45(4): 739-755.
Borzaga, Carlo (2013) ‘Social enterprise.’ In L. Bruni, and S. Zamagni, eds., Handbook on the economics of
reciprocity and social enterprise. Cheltenham, U.K. and Northampton, Mass.: Elgar.
Borzaga, Carlo, and Jacques Defourny, eds. (2001) The Emergence of Social Enterprise. London and New
York: Routledge.
Brekke, K. A., S. Kverndokk, and K. Nyborg (2003) ‘An economic model of moral motivation, Journal of
Public Economics, 87(9-10): 1967-1983.
Brekke, K. A., G. Kipperberg, and K. Nyborg (2010) ‘Social interaction in responsibility ascription: The case
of household recycling,’ Land Economics, 86(4), 766-784.
Camerer, Colin and Ernst Fehr (2004) ‘Measuring Social Norms and Preferences using Experimental Games:
A Guide for Social Scientists.’ In Joseph Henrich, Robert Boyd, Samuel Bowles, Herbert Gintis, Ernst Fehr
and Colin Camerer, eds., Foundations of Human Sociality: Ethnography and Experiments in 15 Small-Scale
Societies. Oxford and New York: Oxford University Press, pp. 55-95.
Carlsson, F., J.H. García, and Å. Löfgren (2010) ‘Conformity and the demand for environmental goods,’
Environmental and Resource Economics, 47(3): 407-421.
Chang, J. B., and J. Lusk (2009) ‘Fairness and food choice,’ Food Policy, 34(6): 483-491.
18
Co-operative Bank (2007) ‘The Ethical Consumerism Report 2007.’ Available electronically at
http://www.co-perativebank.co.uk/images/pdf/ethical_consumer_report_2007.pdf, accessed on
9/24/2014.
Crane, Andrew, Dirk Matten, Abagail McWilliams, Jeremy Moon, and Donald S. Siegel, eds. (2008). The
Oxford Handbook of Corporate Social Responsibility. Oxford, UK: Oxford University Press.
Dastrup, S. R., J. Graff Zivin, D. Costa, and M. Kahn (2012) ‘Understanding the solar home price premium:
Electricity generation and "green" social status,’ European Economic Review, 56(5): 961-973.
Dragusanu, Raluca, Daniele Giovannucci, and Nathan Nunn (2014) ‘The economics of fair trade,’ Journal
of Economic Perspectives, 28(3): 217-236.
Elster, J. (1989) The Cement of Society: A Study of Social Order. New York and Cambridge, UK: Cambridge
University Press.
Eriksson, C. (2004) ‘Can green consumerism replace environmental regulation? A differentiated-products
example,’ Resource and Energy Economics, 26(3): 281–293.
Fairtrade International (2013) Monitoring the scope and benefits of fair trade, 5th edition. Accessed
electronically on 24 September 2014,
http://www.fairtrade.net/fileadmin/user_upload/content/2009/resources/2013-Fairtrade-MonitoringScope-Benefits_web.pdf
Ernst Fehr and Urs Fischbacher (2002) ‘Why Social Preferences Matter: The Impact of Non-Selfish Motives
on Competition, Cooperation and Incentives,’ Economic Journal, 112(478): C1-C33.
Friedman, Milton (1970) ‘The Social Responsibility of Business is to Increase its Profits,’ New York Times
Magazine (13 Sept.): 32-33, 122-124
Gallagher, K. S., and E. Muehlegger (2011) ‘Giving green to get green? Incentives and consumer adoption
of hybrid vehicle technology,’ Journal of Environmental Economics and Management, 61(1), 1-15.
Gatersleben, Birgitta Linda Steg, and Charles Vlek (2002) ‘Measurement and Determinants of
Environmentally Significant Consumer Behavior,’ Environment and Behavior, 34(3): 335-362.
He, N., and J.C. Bernard (2011) ‘Differences in WTP and consumer demand for organic and non-GM fresh
and processed foods,’ Agricultural and Resource Economics Review, 40(2): 218-232.
Hills, K. M., J.R. Goldberger, and S.S. Jones (2013) ‘Commercial bakers and the relocalization of wheat in
western Washington state,’ Agriculture and Human Values, 30(3): 365-378.
Inwood, S. M., J.S. Sharp, R.H. Moore, and D.H. Stinner (2009) ‘Restaurants, chefs and local foods: Insights
drawn from application of a diffusion of innovation framework,’ Agriculture and Human Values, 26(3):
177-191.
19
Jackson, Matthew O. (2011) ‘An Overview of Social Networks and Economic Applications.’ In Benhabib, A.
Bisin, and M.O. Jackson, eds., The Handbook of Social Economics. Amsterdam: North Holland Press, pp.
511-586.
Jaffee, D., and P.H. Howard (2010) ‘Corporate cooptation of organic and fair trade standards,’ Agriculture
and Human Values, 27(4): 387-399.
Johnston, J. and M. Szabo (2011) ‘Reflexivity and the whole foods market consumer: The lived experience
of shopping for change,’ Agriculture and Human Values, 28(3): 303-319.
Kahn, M. E. (2007). ‘Do greens drive hummers or hybrids? Environmental ideology as a determinant of
consumer choice,’ Journal of Environmental Economics and Management, 54(2): 129-145.
Kitzmueller, M. and J. Shimshack (2012) ‘Economic perspectives on corporate social responsibility,’
Journal of Economic Literature, 50(1): 51-84.
KPGM International (2013) KPGM Survey of Corporate Social Responsibility Reporting 2013. Accessed
electronically at: http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/corporateresponsibility/Documents/corporate-responsibility-reporting-survey-2013.pdf
Lilley, A. and R. Slonim (2014) ‘The price of warm glow,’ Journal of Public Economics, 114, 58-74.
Lindman, Å., K. Ek, and P. Söderholm (2013) ‘Voluntary citizen participation in carbon allowance markets:
The role of norm-based motivation,’ Climate Policy, 13(6): 680-697.
Liu, G. and W. Ko (2012) ‘Organizational learning and marketing capability development: A study of the
charity retailing operations of British social enterprise,’ Nonprofit and Voluntary Sector Quarterly, 41(4):
580-608
Liu, Y. (2014) ‘Household demand and willingness to pay for hybrid vehicles,’ Energy Economics, 44 (July):
191–197.
Loureiro, L.M. and S. Hine (2002) ‘Discovering Niche Markets: A Comparison of Consumer Willingness to
Pay for Local (Colorado Grown), Organic, and GMO-Free Products,’ Journal of Agricultural and Applied
Economics, 34(3): 477-487.
Maguire, K. B., N. Owens, and N.B. Simon (2004) ‘The price premium for organic babyfood: A hedonic
analysis,’ Journal of Agricultural and Resource Economics, 29(1), 132-149.
Mankiw, N. Gregory (2014) Principles of Economics, 7th edition. Stamford, CT: Cengage Learning.
Matsumoto, Shigeru (2014) ‘The Opportunity Cost of Pro-Environmental Activities: Spending Time to
Promote the Environments,’ Journal of Family and Economic Issues, 35(1): 119-130.
Meier, Stephan (2007) ‘A Survey of Economic Theories and Field Evidence on Pro-Social Behavior.’ In Bruno
S. Frey and Alois Stutzer, eds., Economics and Psychology: A Promising New Cross-Disciplinary Field.
Cambridge, Massachusetts: MIT Press, pp. 51-88.
20
Muster, V. (2011) ‘Companies promoting sustainable consumption of employees,’ Journal of Consumer
Policy, 34(1): 161-174.
Nyborg, K., R.B. Howarth, and K.A. Brekke (2006) ‘Green consumers and public policy: On socially
contingent moral motivation,’ Resource and Energy Economics, 28(4): 351-366.
Pedersen, L.H. (2000) ‘The dynamics of green consumption: a matter of visibility?’ Journal of
Environmental Policy and Planning 2(3): 193–210.
Perino, G., L.A. Panzone, and T. Swanson (2014) ‘Motivation crowding in real consumption decisions: Who
is messing with my groceries?’ Economic Inquiry, 52(2): 592-607.
Ropke, I. (2009) ‘Theories of practice: New inspiration for ecological economic studies on consumption,’
Ecological Economics, 68(10): 2490-2497.
Schultz, P.W. (2002) ‘Knowledge, information and household recycling: Examining the knowledge-deficit
model of behavior change.’ In T. Dietz and P. Stern, eds., New Tools for Environmental Protection:
Education, Information and Voluntary Measures. Washington, DC: National Academy Press.
Sexton, S. E. and A.L. Sexton (2014) ‘Conspicuous conservation: The Prius halo and willingness to pay for
environmental bona fides,’ Journal of Environmental Economics and Management, 67(3): 303-317.
Starr, M. A. (2009) ‘The Social Economics of Ethical Consumption: Theoretical Considerations and
Empirical Evidence,’ Journal of Socio-Economics, 38: 916–925.
Thompson, J. and B. Doherty (2006) ‘The diverse world of social enterprise: A collection of social
enterprise stories,’ International Journal of Social Economics, 33(5-6): 361-375.
van den Bergh, J. (2008) ‘Environmental regulation of households: An empirical review of economic and
psychological factors,’ Ecological Economics, 66(4): 559-574.
Venhoeven, Leonie, Jan Willem Bolderdijk and Linda Steg (2013) ‘Explaining the Paradox: How ProEnvironmental Behaviour can both Thwart and Foster Well-Being,’ Sustainability, 5(4): 1372-1386.
Videras, J. and A. Owen (2006) ‘Public Goods Provision and Well-Being: Empirical Evidence Consistent with
the Warm Glow Theory,’ B.E. Journal of Economic Analysis & Policy, 5(1): Article 9.
Viscusi, W. K., J. Huber, and J. Bell (2011) ‘Promoting recycling: Private values, social norms, and
economic incentives,’ American Economic Review, 101(3), 65-70.
____________________________ (2012) ‘Alternative policies to increase recycling of plastic water bottles
in the United States,’ Review of Environmental Economics and Policy, 6(2), 190-211.
Waight, E (2013) ‘Eco babies: Reducing a parent's ecological footprint with second-hand consumer goods,’
International Journal of Green Economics, 7(2): 197-211.
21
Yiridoe, E.K., S. Bonti-Ankomah, and R.C. Martin (2005) ‘Comparison of Consumer Perceptions and
Preference toward Organic versus Conventionally Produced Foods: A Review and Update of the Literature,’
Renewable Agriculture and Food Systems, 20(4): 193-205.