Fairness, Consumer Consciousness and the Welfare of Less Developed Countries

Activist organizations, interest groups, unions and media reveal information about labour standards. In a world where some consumers are not self-interested, the price of a product made by a multinational enterprise and the latter’s location and production decisions depend on the difference in labour standards between developed and less developed countries. We study the effect of an increase in the fraction of informed inequity-averse consumers on the behaviour of multinational frms, on the equilibrium level of labour standards and on the welfare of workers in the less developed countries. An increase in activism deteriorates labour practices and decreases welfare.