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Organizational structure, redistribution and the endogeneity of cost: Cooperatives, investor-owned firms and the cost of procurement

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  • Bontems, Philippe
  • Fulton, Murray

Abstract

As an organizational type, cooperatives are in general not the dominant form of enterprise. Nevertheless, cooperatives and cooperative-like organizations do play important roles in a number of sectors, suggesting that in some circumstances they are more efficient than other business forms. This paper explores the importance of membership goals on the relative efficiency of the cooperative form of organization. The cooperative cost (and hence production efficiency) advantage is directly linked to the goal alignment between the cooperative and its members, and is influenced by the extent of income redistribution between members and the degree of rent seeking that takes place in the organization. When there is no aversion to income inequality, the members produce at their first best levels. However, as aversion to inequality rises, the production profile of the members converges to the production profile generated when the members face an IOF. Regarding rent seeking, if the more (less) efficient members are able to get their profits valued more, total output is increased (decreased). As a consequence, consumers may benefit from the lobbying that occurs inside a cooperative where the powerful members are the most efficient agents.

Suggested Citation

  • Bontems, Philippe & Fulton, Murray, 2009. "Organizational structure, redistribution and the endogeneity of cost: Cooperatives, investor-owned firms and the cost of procurement," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 322-343, October.
  • Handle: RePEc:eee:jeborg:v:72:y:2009:i:1:p:322-343
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    References listed on IDEAS

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    Cited by:

    1. Schamel, Guenter H. & Santos-Arteaga, Francisco J., 2015. "Firm Organizational and Payoff Imbalances: An Aggrievement Model with Cooperatives and Private Firms," 2015 Conference, August 9-14, 2015, Milan, Italy 212274, International Association of Agricultural Economists.
    2. Agbo, Maxime & Rousselière, Damien & Salanié, Julien, 2015. "Agricultural marketing cooperatives with direct selling: A cooperative–non-cooperative game," Journal of Economic Behavior & Organization, Elsevier, vol. 109(C), pages 56-71.
    3. Nilsson, Lovisa, 2010. "Cooperatives in transition," Department of Economics publications 2296, Swedish University of Agricultural Sciences, Department of Economics.
    4. Maxime Agbo & Damien Rousselière & Julien Salanié, 2013. "A Theory of Agricultural Marketing Cooperatives with Direct selling," Working Papers halshs-00906894, HAL.
    5. Cadot, Julien, 2014. "Agency costs of vertical integration: the case of wine business in France," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182671, European Association of Agricultural Economists.
    6. repec:rss:jnljms:v5i5p6 is not listed on IDEAS
    7. Benmehaia, Mohamed Amine & Brabez, Fatima, 4. "The Propensity To Cooperate Among Peasant Farmers In Algeria: An Analysis From Bivariate Approach," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 4(4).
    8. George Hendrikse & Li Feng, 2013. "Interfirm cooperatives," Chapters,in: Handbook of Economic Organization, chapter 26 Edward Elgar Publishing.
    9. Bareille, François & Beaugrand, Florence & Duvaleix-Treguer, Sabine, 2016. "Objectives’ alignment between members and agricultural cooperatives," 149th Seminar, October 27-28, 2016, Rennes, France 244948, European Association of Agricultural Economists.
    10. Feng, L. & Hendrikse, G.W.J., 2011. "Chain Interdependencies, Measurement Problems, and Efficient Governance Structure: Cooperatives versus Publicly Listed Firms," ERIM Report Series Research in Management ERS-2011-001-ORG, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
    11. Tschöpel, Michael, 2012. "Die Wirkungskanäle der genossenschaftlichen Eigentümermerkmale: Implikationen für das mitgliederorientierte Management in Genossenschaftsbanken," Arbeitspapiere 127, University of Münster, Institute for Cooperatives.
    12. Julien Cadot, 2015. "Agency costs of vertical integration—the case of family firms, investor-owned firms and cooperatives in the French wine industry," Agricultural Economics, International Association of Agricultural Economists, vol. 46(2), pages 187-194, March.
    13. Ericka Costa & Michele Andreaus & Chiara Carini & Maurizio Carpita, 2012. "Exploring the efficiency of Italian social cooperatives by descriptive and principal component analysis," Service Business, Springer;Pan-Pacific Business Association, vol. 6(1), pages 117-136, March.
    14. Chiara Carini & Ericka Costa & Maurizio Carpita & Michele Andreaus, 2012. "The Italian Social Cooperatives in 2008: A Portrait Using Descriptive and Principal Component Analysis," Euricse Working Papers 1235, Euricse (European Research Institute on Cooperative and Social Enterprises).
    15. repec:hal:journl:halshs-01098762 is not listed on IDEAS

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