Abstinence from Child Labor and Profit Seeking

Some firms voluntarily abstain from using child labor, presumably in response to concerns about the welfare of overseas child workers. These firms do not, however, support banning the imports of competitors’ products manufactured with child labor. As an explanation of this seemingly contradictory behavior, I consider a setting in which two firms engage in Bertrand competition for consumers who vary in the value they place on goods made without child labor. When the firms differentiate themselves according to their labor input, both enjoy greater profits. If imports using child labor are banned, this reduces the profits of both firms. Similar results can also arise in a many firm setting. If charitable donations to education foundations raise the cost of child labor, this too can arise as a purely profitseeking activity by adult labor firms. Thus, while the adult-labor firms engage in seemingly altruistic behavior, they may do so not out of regard for children but rather for their own profits.