Principal-Agent Relationships in Agricultural Cooperatives: An Empirical Analysis from Rural Alberta

Cooperatives throughout North America are consolidating at an increasing rate and for a variety of reasons. While many cooperatives merge with others or are acquired to achieve greater economies of scale, several fail due to changes in the external economy, which make them redundant. Often, such redundancy is reflected in a heightened sense of member dissatisfaction. Many argue that such dissatisfaction is likely to arise in cooperatives as a result of principal-agent problems. In order to determine whether or not cooperative managers maintain the same goals as their owners, this study uses data from a member-survey to compare Alberta cooperative members' objectives with those they believe to be held by their cooperatives' managers. An econometric model of the difference between members' expectations and perceptions shows how various socioeconomic variables affect the extent to which these objectives are aligned. The results of this analysis can help cooperative boards design managerial incentive programs to better align their goals with those of the cooperative membership.