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Efficiency of Decisions under Membership Heterogeneity and Government Regulations: Insights from Farmer Cooperatives in China

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  • Meilin Ma
  • Heng Zhu

Abstract

The Cooperative Law, passed in 2007, aims to support and regulate farmer cooperatives in China. The adoption of its regulations is uneven, with most regulations followed except the one-person, one-vote rule. We model investment decisions of Chinese cooperatives and measure the efficiency of capital allocation under heterogeneous membership and alternative governance policies. We show that relative membership heterogeneity in equity and patronage holdings and a cooperative’s dividend policy are crucial in determining the optimal level of governance centralization. Centralizing the governance to major equity holders and following other regulations reflect a trade-off faced by cooperatives between obtaining financial support from the government and achieving efficient decision-making.

Suggested Citation

  • Meilin Ma & Heng Zhu, 2020. "Efficiency of Decisions under Membership Heterogeneity and Government Regulations: Insights from Farmer Cooperatives in China," Economic Development and Cultural Change, University of Chicago Press, vol. 68(3), pages 1009-1040.
    • Handle: RePEc:ucp:ecdecc:doi:10.1086/701318
    DOI: 10.1086/701318
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    Cited by:

    1. Meilin Ma & Richard J. Sexton, 2021. "Modern agricultural value chains and the future of smallholder farming systems," Agricultural Economics, International Association of Agricultural Economists, vol. 52(4), pages 591-606, July.
    2. Meilin Ma & Jessie Lin & Richard J. Sexton, 2022. "The Transition from Small to Large Farms in Developing Economies: A Welfare Analysis," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(1), pages 111-133, January.
    3. Lin, Bin & Wang, Xiaoxi & Jin, Songqing & Yang, Wanjiang & Li, Houjian, 2022. "Impacts of cooperative membership on rice productivity: Evidence from China," World Development, Elsevier, vol. 150(C).

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