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The Formation of Cooperatives: A Game-Theoretic Approach with Implications for Cooperative Finance, Decision Making, and Stability


  • Richard J. Sexton


This paper departs from the traditional organization-oriented approach to cooperative analysis. It exploits cooperation's functional similarity to vertical integration to examine individuals' incentives to form cooperatives. A model of formation of a purchasing cooperative is presented and developed as an n-person game with the core as a solution concept. Core existence is examined for both single- and multiple-cooperative configurations, and cooperative finance methods are examined relative to finding core-compatible allocation rules. The results provide insight into a cooperative's equilibrium output, stability, decision making, financing methods, and choice of open or restricted membership.

Suggested Citation

  • 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.
  • Handle: RePEc:oup:ajagec:v:68:y:1986:i:2:p:214-225.

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    Cited by:

    1. Sabine Duvaleix-Treguer & Jean Cordier & Vincent Hovelaque, 2003. "Towards a new cooperative commitment in the dairy sector
      [Vers un nouvel engagement coopératif dans le secteur laitier]
      ," Post-Print hal-01830916, HAL.
    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. Sexton, Richard J., 1990. "The Role of Cooperatives in Increasingly Concentrated Agricultural Markets," Cooperatives: Their Importance in the Future Food and Agricultural System - FAMC 1990 Conference 265909, Food and Agricultural Marketing Consortium (FAMC).
    4. repec:eee:wdevel:v:96:y:2017:i:c:p:294-314 is not listed on IDEAS
    5. Cordero Salas, Paula, 2016. "Relational Contracts and Product Quality: The Effect of Bargaining Power on Efficiency and Distribution," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 41(3), pages 1-19.
    6. Laura Abrardi & Luca Colombo & Pier Angelo Mori, 2016. "Customer Ownership And Quality Provision In Public Services Under Asymmetric Information," Economic Inquiry, Western Economic Association International, vol. 54(3), pages 1499-1518, July.
    7. Derek C. Jones & Panu Kalmi, 2013. "Cooperative enterprise," Chapters, in: Luigino Bruni & Stefano Zamagni (ed.), Handbook on the Economics of Reciprocity and Social Enterprise, chapter 8, pages 85-93, Edward Elgar Publishing.
    8. Giannakas, Konstantinos & Fulton, Murray & Sesmero, Juan, 2016. "Horizon and Free-Rider Problems in Cooperative Organizations," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 41(3), pages 1-21.
    9. Keeling Bond, Jennifer J., 2005. "Cooperative Performance and Board of Director Characteristics: A Quantitative Investigation," 2005 Annual meeting, July 24-27, Providence, RI 19314, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    10. Sexton, Richard J., 1991. "Game Theory: A Review With Applications To Vertical Control In Agricultural Markets," Working Papers 225865, University of California, Davis, Department of Agricultural and Resource Economics.
    11. Wooseung Jang & Cerry Klein, 2011. "Supply chain models for small agricultural enterprises," Annals of Operations Research, Springer, vol. 190(1), pages 359-374, October.
    12. Sporleder, Thomas L. & Goldsmith, Peter D., 1990. "The Risk Mitigation Aspects of Agricultural Cooperatives," Cooperatives: Their Importance in the Future Food and Agricultural System - FAMC 1990 Conference 265910, Food and Agricultural Marketing Consortium (FAMC).
    13. repec:bla:annpce:v:89:y:2018:i:4:p:697-712 is not listed on IDEAS
    14. George Hendrikse & Li Feng, 2013. "Interfirm cooperatives," Chapters, in: Anna Grandori (ed.), Handbook of Economic Organization, chapter 26, Edward Elgar Publishing.
    15. Zivkovic, Sanja & Hudson, Darren & Johnson, Phillip & Park, John, 2016. "A Study in Attitudes Shaping Cooperative Leadership," 2016 Annual Meeting, February 6-9, 2016, San Antonio, Texas 229588, Southern Agricultural Economics Association.
    16. repec:eee:ecosys:v:41:y:2017:i:1:p:86-97 is not listed on IDEAS
    17. Marco A. MARINI & Paolo POLIDORI & Desiree TEOBALDELLI & Alberto ZEVI, 2015. "Welfare Enhancing Coordination In Consumer Cooperatives Under Mixed Oligopoly," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 86(3), pages 505-527, September.
    18. repec:eee:proeco:v:194:y:2017:i:c:p:59-72 is not listed on IDEAS
    19. Liang, Qiao & Hendrikse, George, 2016. "Pooling and the yardstick effect of cooperatives," Agricultural Systems, Elsevier, vol. 143(C), pages 97-105.
    20. Kimberly A. Zeuli & Robert P. King, 2004. "The Impact of Organizational Form on Producer Contracting Decisions," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 52(2), pages 147-164, July.

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