Blind Fines in Cooperatives
AbstractIn this paper we focus on inefficient product quality arising from a free-riding problem in agricultural cooperatives. Individual incentives are not aligned with group gains in cooperatives because individual members bear the costs of offering higher qualities, whereas the benefits from these higher qualities are shared among all members. We present a blind mechanism whose quality-enhancing properties are analyzed in a theoretical model. This mechanism, which does not require individual monitoring, consists of individually punishing co-op members by using aggregate co-op performance in such way that the better the co-op quality, the lower the exclusion probability. In a computerized environment, using experimental methods, we specifically test the effectiveness of our mechanism in alleviating the incentive problem. Experimental results show that our blind punishment mechanism achieves significant efficiency gains. Copyright 2010, Oxford University Press.
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Bibliographic InfoArticle provided by Agricultural and Applied Economics Association in its journal Applied Economic Perspectives and Policy.
Volume (Year): 32 (2010)
Issue (Month): 4 ()
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