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Blind Fines in Cooperatives

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  • Enrique Fatas
  • Francisca Jimenez-Jimenez
  • Antonio J. Morales

Abstract

In this paper we focus on inefficient product quality arising from a free-riding problem in agricultural cooperatives. Individual incentives are not aligned with group gains in cooperatives because individual members bear the costs of offering higher qualities, whereas the benefits from these higher qualities are shared among all members. We present a blind mechanism whose quality-enhancing properties are analyzed in a theoretical model. This mechanism, which does not require individual monitoring, consists of individually punishing co-op members by using aggregate co-op performance in such way that the better the co-op quality, the lower the exclusion probability. In a computerized environment, using experimental methods, we specifically test the effectiveness of our mechanism in alleviating the incentive problem. Experimental results show that our blind punishment mechanism achieves significant efficiency gains. Copyright 2010, Oxford University Press.

Suggested Citation

  • Enrique Fatas & Francisca Jimenez-Jimenez & Antonio J. Morales, 2010. "Blind Fines in Cooperatives," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 32(4), pages 564-587.
  • Handle: RePEc:oup:apecpp:v:32:y:2010:i:4:p:564-587
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    File URL: http://hdl.handle.net/10.1093/aepp/ppq017
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    Cited by:

    1. 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.
    2. Maxime Agbo & Damien Rousselière & Julien Salanié, 2013. "A Theory of Agricultural Marketing Cooperatives with Direct selling," Working Papers halshs-00906894, HAL.
    3. Alexander E. Saak, 2012. "Collective Reputation, Social Norms, and Participation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 94(3), pages 763-785.

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