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A Dynamic Theory of Cooperatives: The Link between Efficiency and Valuation

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  • Lewis Evans
  • Graeme Guthrie

Abstract

We demonstrate that a multi-period model, and the valuations it implies, is essential for understanding inefficiency in cooperative organizational forms. Investment is efficient given the supply of input, but economic inefficiency arises because of over-supply of input induced by suppliers responding to average, rather than marginal, revenue. We show that inefficiency disappears if the cooperative's shares are priced at the present value of expected dividends and supplier entry and exit decisions are taken on the basis of profitability of membership. This pricing scheme simplifies cooperative governance by lowering transaction costs of governance with heterogeneous suppliers. We describe a functioning example.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 162 (2006)
Issue (Month): 2 (June)
Pages: 364-383

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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200606)162:2_364:adtoct_2.0.tx_2-s

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Cited by:
  1. Hailu, Getu & Goddard, Ellen W. & Jeffrey, Scott R., 2005. "Measuring Efficiency in Fruit and Vegetable Marketing Co-operatives with Heterogeneous Technologies in Canada," 2005 Annual meeting, July 24-27, Providence, RI 19507, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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