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Are Cooperatives Efficient When Membership is Voluntary?

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  • Leathers, Howard D.

Abstract

If profit-maximizing farmers are free to join or not to join a cooperative, it may appear reasonable to assume that a cooperative will exist only when it has cost advantaged over non-cooperative marketing. This paper presents a model in which that result fails. Every individual farmer chooses either to join or not join a cooperative depending on whether transactions costs are lower from cooperative membership or nonmembership. As cooperative membership increases, transactions costs for members decline, but for nonmembers these costs increase. Results of this analysis reveal that an equilibrium exists in which all farmers voluntarily choose to join the cooperative, but more than half of the members wish the cooperative had not been formed, and transactions costs in the aggregate are higher with the cooperative then without it.

Suggested Citation

  • Leathers, Howard D., 2006. "Are Cooperatives Efficient When Membership is Voluntary?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 31(3), pages 1-10, December.
    • Handle: RePEc:ags:jlaare:8628
    DOI: 10.22004/ag.econ.8628
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    References listed on IDEAS

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    1. George Hendrikse & Jos Bijman, 2002. "Ownership Structure in Agrifood Chains: The Marketing Cooperative," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 104-119.
    2. 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.
    3. Claude Ménard & Peter G. Klein, 2004. "Organizational Issues in the Agrifood Sector: Toward a Comparative Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(3), pages 750-755.
    4. Richard J. Sexton, 1986. "The Formation of Cooperatives: A Game-Theoretic Approach with Implications for Cooperative Finance, Decision Making, and Stability," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(2), pages 214-225.
    5. Michael E. Sykuta & Michael L. Cook, 2001. "A New Institutional Economics Approach to Contracts and Cooperatives," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(5), pages 1273-1279.
    6. Avinash Dixit, 2003. "Clubs with Entrapment," American Economic Review, American Economic Association, vol. 93(5), pages 1824-1829, December.
    7. Mathew O. Tobriner, 1924. "How Shall Cooperatives be Organized?," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 6(4), pages 367-377.
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    Cited by:

    1. Katchova, Ani L., 2010. "Agricultural Cooperatives and Contract Price Competitiveness," Journal of Cooperatives, NCERA-210, vol. 24, pages 1-13.
    2. Gezahegn, Tafesse & Van Passel, Steven & Berhanu, Tekeste & D'Haese, Marijke & Maertens, Miet, 2020. "Structural and Institutional Heterogeneity among Agricultural Cooperatives in Ethiopia: Does it Matter for Farmers’ Welfare?," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 46(2), August.

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