Child labor-free product labels are efficiency-enhancing when child welfare is a public good only if resources are generated to enhance the well-being of children. However, for a small price-taking economy with at least as many goods as factors and competitively supplied labels, the premium paid by consumers is dissipated by a production inefficiency associated with the adult-only technology. Child labor will decline if labeling firms bid the adult wage above the threshold at which families begin to withdraw their children from the workforce. Alternatively, monitoring agencies may offer consumers a donation label, which claims that some fraction of the purchase price will be donated to a child-welfare fund. A donation label is more efficient than the child labor-free label as it eliminates the production inefficiency and the inefficient competition among certification agencies. The standard contract offered in the child labor free labeling sector has elements of a donation label.
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