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Operational and Financial Decisions Within Proportional Investment Cooperatives

Author

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  • Xiaoyan Qian

    (School of Management Science and Engineering, Dongbei University of Finance and Economics, DaLian 116025, China)

  • Tava Lennon Olsen

    (The University of Auckland Business School, Auckland 1141, New Zealand)

Abstract

Problem definition: We explore the coordination of operational and financial decisions of proportional investment agricultural marketing cooperatives, where members’ (farmers’) equity is required to be in proportion to their patronage (i.e., produce supplied). Academic/practical relevance: In a cooperative (co-op), operational and financial decisions are inseparable because the co-op’s investment capital is linked to its economic transactions with members. We include unique features of co-ops into an analytical model and derive some key results that are different from those for investor-owned corporations. Methodology: In the presence of yield and market uncertainty, we model this situation using a Markov decision process wherein the decisions of processing quantity interact with the financial decisions of retained earnings and short-term loans. The objective is to maximize the expected present value of the aggregated farmers’ payments over a finite horizon. Results: (1) Characterization of the properties of the value function and the optimal policy; (2) explicit expressions for the deterministic yield dynamic program, wherein a myopic policy is optimal; and (3) identification of financial risks associated with uncertain market and yield. Managerial implications: The results provide insight into a co-op’s decision making, cash position, and risk management.

Suggested Citation

  • Xiaoyan Qian & Tava Lennon Olsen, 2020. "Operational and Financial Decisions Within Proportional Investment Cooperatives," Manufacturing & Service Operations Management, INFORMS, vol. 22(3), pages 545-561, May.
    • Handle: RePEc:inm:ormsom:v:22:y:2020:i:3:p:545-561
    DOI: 10.1287/msom.2018.0762
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