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Do Cooperatives Offer High Quality Products? Theory and Empirical Evidence from the Wine Market

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  • Pennerstorfer, Dieter
  • Weiss, Christoph R.

Abstract

We investigate the impact of decentralised decision making on product quality. Comparing a cooperative (decentralized decision making) and a firm (centralized decision making) suggests that members of the cooperative have an incentive to produce too much and to free-ride on quality. Free-riding on quantity and quality are interrelated which implies that the final product of the cooperative can even be of higher quality than its entrepreneurial twin, despite free-riding on quality. Whether or not cooperatives deliver higher quality products depends on the way in which the quality of the final product is determined from the quality levels of the inputs delivered (quality aggregation) as well as the number of members of the cooperative. Empirical evidence on the Austrian wine market suggests that wines produced by cooperatives tend to be of significantly lower quality, ceteris paribus.

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Bibliographic Info

Paper provided by European Association of Agricultural Economists in its series 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland with number 115741.

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Date of creation: 02 Sep 2011
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Handle: RePEc:ags:eaae11:115741

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Keywords: Agribusiness;

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  1. Rafat A. M. E. Soboh & Alfons Oude Lansink & Gerard Giesen & Gert van Dijk, 2009. "Performance Measurement of the Agricultural Marketing Cooperatives: The Gap between Theory and Practice," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 31(3), pages 446-469, 09.
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  7. Albaek, Svend & Schultz, Christian, 1998. "On the relative advantage of cooperatives," Economics Letters, Elsevier, vol. 59(3), pages 397-401, June.
  8. Jason A. Winfree & Jill J. McCluskey, 2005. "Collective Reputation and Quality," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(1), pages 206-213.
  9. Tirole, J., 1993. "A Theory of Collective Reputations with Applications to the Persistence of Corruption and to Firm Quality," Working papers 93-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  10. Bonin, John P & Jones, Derek C & Putterman, Louis, 1993. "Theoretical and Empirical Studies of Producer Cooperatives: Will Ever the Twain Meet?," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1290-320, September.
  11. Bruce A. Babcock & Quinn Weninger, 2004. "Can Quality Revitalize the Alaskan Salmon Industry?," Center for Agricultural and Rural Development (CARD) Publications 04-wp359, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  12. Tina L. Saitone & Richard J. Sexton, 2009. "Optimal Cooperative Pooling in a Quality-Differentiated Market," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1224-1232.
  13. Kostas Karantininis & Angelo Zago, 2001. "Endogenous Membership in Mixed Duopsonies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(5), pages 1266-1272.
  14. Baltagi, Badi H. & Li, Qi, 1992. "A Note on the Estimation of Simultaneous Equations with Error Components," Econometric Theory, Cambridge University Press, vol. 8(01), pages 113-119, March.
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