A Dynamic Theory of Cooperatives: The Link between Efficiency and Valuation
We demonstrate that a multi-period model, and the valuations it implies, is essential for understanding inefficiency in cooperative organizational forms. Investment is efficient given the supply of input, but economic inefficiency arises because of over-supply of input induced by suppliers responding to average, rather than marginal, revenue. We show that inefficiency disappears if the cooperative's shares are priced at the present value of expected dividends and supplier entry and exit decisions are taken on the basis of profitability of membership. This pricing scheme simplifies cooperative governance by lowering transaction costs of governance with heterogeneous suppliers. We describe a functioning example.
Volume (Year): 162 (2006)
Issue (Month): 2 (June)
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- Jensen, Michael C & Meckling, William H, 1979. "Rights and Production Functions: An Application to Labor-managed Firms and Codetermination," The Journal of Business, University of Chicago Press, vol. 52(4), pages 469-506, October.
- Peter Vitaliano, 1983. "Cooperative Enterprise: An Alternative Conceptual Basis for Analyzing a Complex Institution," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 65(5), pages 1078-1083.
- Peter Helmberger & Sidney Hoos, 1962. "Cooperative Enterprise and Organization Theory," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 44(2), pages 275-290.
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