The Horizon Problem Reconsidered
AbstractThis paper challenges the general view in the literature that cooperatives underinvest, because some members will exit the cooperative before the full benefits from their investments are harvested (the horizon problem). This paper demonstrates that full equity redemption will solve the horizon problem. The majority of members will, however, bias the exit payment to their own advantage. This will lead to overinvestment. Thus, the main finding in this paper is that if there is a horizon problem, it will lead to overinvestment not underinvestment.
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Bibliographic InfoPaper provided by European Association of Agricultural Economists in its series 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark with number 24489.
Date of creation: 2005
Date of revision:
cooperatives; investment incentives; financial structure; Agribusiness; D23; J54; P13;
Find related papers by JEL classification:
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms
- P13 - Economic Systems - - Capitalist Systems - - - Cooperative Enterprises
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Porter, Philip K & Scully, Gerald W, 1987. "Economic Efficiency in Cooperatives," Journal of Law and Economics, University of Chicago Press, vol. 30(2), pages 489-512, October.
- Borgen, Svein Ole, 2004. "Rethinking incentive problems in cooperative organizations," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 33(4), pages 383-393, September.
- Douglas W. Diamond & Philip H. Dybvig, 2000.
"Bank runs, deposit insurance, and liquidity,"
Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
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