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The Cooperative Firm as Monitored Credit

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Author Info
Hueth, Brent (U of Wisconsin)
Marcoul, Philippe (Iowa State U)

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Abstract

We develop a financial-contracting theory of the cooperative fim where production requires three generic tasks: working, managing, and monitoring. Workers provide an intermediate input (or labor directly); managers convert the workers' input into a final output; and directors monitor managers. We model the cooperative firm by letting the workers act also as directors. We show how bundling the labor and monitoring tasks can expand the scope for equilibrium market activity, even when doing so results in a strictly positive deadweight loss. Our theory provides new insight with respect to a substantial theoretical and empirical literature on the "life cycle" of worker-managed firms, and with respect to a complementary body of anecdotal evidence on the causes of worker buyouts and cooperative "degeneration". Our theory is also consistent with differences between the board compensation policies of cooperative firms, where members typically receive little more than travel and per-diem reimbursements, and of investor-owned firms, where members receive substantial pay often based in part on firm financial performance.

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File URL: http://www.aae.wisc.edu/pubs/sps/pdf/stpap508.pdf
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Paper provided by University of Wisconsin, Agricultural and Applied Economics in its series Staff Paper Series with number 508.

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Date of creation: Jun 2007
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Handle: RePEc:ecl:wisagr:508

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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.:

  1. Banerjee, Abhijit V & Besley, Timothy & Guinnane, Timothy W, 1994. "Thy Neighbor's Keeper: The Design of a Credit Cooperative with Theory and a Test," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 491-515, May. [Downloadable!] (restricted)
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  2. Besanko, David & Kanatas, George, 1993. "Credit Market Equilibrium with Bank Monitoring and Moral Hazard," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 6(1), pages 213-32. [Downloadable!] (restricted)
  3. Jonathan Levin & Steven Tadelis, 2005. "Profit Sharing and the Role of Professional Partnerships," The Quarterly Journal of Economics, MIT Press, vol. 120(1), pages 131-171, January.
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  4. Dow, Gregory K. & Putterman, Louis, 2000. "Why capital suppliers (usually) hire workers: what we know and what we need to know," Journal of Economic Behavior & Organization, Elsevier, vol. 43(3), pages 319-336, November. [Downloadable!] (restricted)
  5. Richard J. Sexton & Terri A. Sexton, 1987. "Cooperatives as Entrants," RAND Journal of Economics, The RAND Corporation, vol. 18(4), pages 581-595, Winter. [Downloadable!] (restricted)
  6. Schmitz, Patrick W., 2005. "Allocating Control in Agency Problems with Limited Liability and Sequential Hidden Actions," CEPR Discussion Papers 5145, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. Oliver Hart & John Moore, 1998. "Cooperatives vs. Outside Ownership," STICERD - Theoretical Economics Paper Series 346, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
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  8. Ben-Ner, Avner & Jun, Byoung, 1996. "Employee Buyout in a Bargaining Game with Asymmetric Information," American Economic Review, American Economic Association, vol. 86(3), pages 502-23, June. [Downloadable!] (restricted)
  9. Roberta Dess’, 2005. "Start-Up Finance, Monitoring, and Collusion," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 255-274, Summer.
  10. Gregory Dow, 2001. "Allocating Control over Firms: Stock Markets versus Membership Markets," Review of Industrial Organization, Springer, vol. 18(2), pages 201-218, March. [Downloadable!] (restricted)
  11. Sinclair-Desgagne, Bernard, 1999. "How to Restore Higher-Powered Incentives in Multitask Agencies," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(2), pages 418-33, July.
  12. Steven J. Holland & Robert P. King, 2004. "Trading Mechanisms for New-Generation Cooperative Stock: The Architecture of Organizational Formation and Demise," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 86(5), pages 1262-1268, December. [Downloadable!] (restricted)
  13. Holmstrom, Bengt & Tirole, Jean, 1997. "Financial Intermediation, Loanable Funds, and the Real Sector," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 663-91, August.
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  14. Fabio R. Chaddad & Michael L. Cook, 2004. "Understanding New Cooperative Models: An Ownership-Control Rights Typology," Review of Agricultural Economics, American Agricultural Economics Association, vol. 26(3), pages 348-360, 09. [Downloadable!] (restricted)
  15. Itoh, Hideshi, 1994. "Job design, delegation and cooperation: A principal-agent analysis," European Economic Review, Elsevier, vol. 38(3-4), pages 691-700, April. [Downloadable!] (restricted)
  16. 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. [Downloadable!] (restricted)
  17. Philippe Aghion & Patrick Bolton & Jean Tirole, 2004. "Exit Options in Corporate Finance: Liquidity versus Incentives," Review of Finance, Oxford University Press for European Finance Association, vol. 8(3), pages 327-353. [Downloadable!] (restricted)
  18. Ben-ner, Avner, 1988. "The life cycle of worker-owned firms in market economies : A theoretical analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 10(3), pages 287-313, October. [Downloadable!] (restricted)
  19. Laux, Christian, 2001. "Limited-Liability and Incentive Contracting with Multiple Projects," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 514-26, Autumn.
  20. Timothy W. Guinnane, 1997. "Cooperatives as Information Machines: German Rural Credit Cooperatives, 1883-1914," Discussion Papers 97-20, University of Copenhagen. Department of Economics.
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(explanations, 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.)

  1. MARCOUL, Philippe & VEYSSIERE, Luc, 2008. "A Financial Contracting Approach to the Role of Supermarkets in Farmers' Credit Access," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6366, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  2. Ginder, Roger & Hueth, Brent & Marcoul, Philippe, 2005. "Cooperatives and Contracting in Agriculture: The Case of West Liberty Foods," Staff General Research Papers 12443, Iowa State University, Department of Economics. [Downloadable!]
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