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A Theory of Co-operatives Based on Rights

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  • Thomas H. Noe

    (Tulane University)

  • Stephen D. Smith

    (Georgia State University and Federal Reserve Bank of Atlanta)

Abstract

We investigate the role of cooperatives in the allocation of risk across agents that we call workers and holders of capital. We show that, despite the inalienability of human capital (no forced labor) and limited liability on the part of all agents, financial coalitions can implement Pareto optimal inter temporal risk sharing services for both workers and holders of capital. We specifically show how optimality can be achieved in worker preferred equiliria if individual holders of capital collectivize and jointly hire workers, who are paid wages depending on the aggregate output of the coalition. Interestingly, we also provide an example where capital preferred equilibria do not provide for optimal risk sharing and re-negotiation proofness.

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Bibliographic Info

Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 3 (2002)
Issue (Month): 2 (November)
Pages: 361-378

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Handle: RePEc:cuf:journl:y:2002:v:3:i:2:p:361-378

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Keywords: Co-operatives; Rights;

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  1. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
  2. Douglas W. Diamond & Raghuram G. Rajan, . "Liquidity Risk, Liquidity Creation and Financial Fragility: A Theory of Banking," CRSP working papers 476, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  3. Ramakrishnan, Ram T S & Thakor, Anjan V, 1984. "Information Reliability and a Theory of Financial Intermediation," Review of Economic Studies, Wiley Blackwell, vol. 51(3), pages 415-32, July.
  4. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-91, May.
  5. Townsend, Robert M, 1978. "Intermediation with Costly Bilateral Exchange," Review of Economic Studies, Wiley Blackwell, vol. 45(3), pages 417-25, October.
  6. Abhijit Banerjee & Dilip Mookherjee & Kaivan Munshi & Debraj Ray, 2001. "Inequality, Control Rights, and Rent Seeking: Sugar Cooperatives in Maharashtra," Journal of Political Economy, University of Chicago Press, vol. 109(1), pages 138-190, February.
  7. Boyd, John H. & Prescott, Edward C., 1986. "Financial intermediary-coalitions," Journal of Economic Theory, Elsevier, vol. 38(2), pages 211-232, April.
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