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Do Cooperatives Offer High Quality Products? Theory and Empirical Evidence from the Wine Market

  • Pennerstorfer, Dieter
  • Weiss, Christoph R.

We investigate the impact of decentralised decision making on product quality. Comparing a cooperative (decentralized decision making) and a firm (centralized decision making) suggests that members of the cooperative have an incentive to produce too much and to free-ride on quality. Free-riding on quantity and quality are interrelated which implies that the final product of the cooperative can even be of higher quality than its entrepreneurial twin, despite free-riding on quality. Whether or not cooperatives deliver higher quality products depends on the way in which the quality of the final product is determined from the quality levels of the inputs delivered (quality aggregation) as well as the number of members of the cooperative. Empirical evidence on the Austrian wine market suggests that wines produced by cooperatives tend to be of significantly lower quality, ceteris paribus.

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Paper provided by European Association of Agricultural Economists in its series 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland with number 115741.

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Date of creation: 02 Sep 2011
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Handle: RePEc:ags:eaae11:115741
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  1. Peter Bogetoft, 2005. "An information economic rationale for cooperatives," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 32(2), pages 191-217, June.
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  7. Svend Albæk & Christian Schultz, 1998. "On the relative advantage of cooperatives," CIE Discussion Papers 1998-02, University of Copenhagen. Department of Economics. Centre for Industrial Economics.
  8. Economides, Nicholas, 1999. "Quality choice and vertical integration," International Journal of Industrial Organization, Elsevier, vol. 17(6), pages 903-914, August.
  9. Baltagi, Badi H., 1981. "Simultaneous equations with error components," Journal of Econometrics, Elsevier, vol. 17(2), pages 189-200, November.
  10. Rafat A. M. E. Soboh & Alfons Oude Lansink & Gerard Giesen & Gert van Dijk, 2009. "Performance Measurement of the Agricultural Marketing Cooperatives: The Gap between Theory and Practice," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 31(3), pages 446-469, 09.
  11. Bonin, John P & Jones, Derek C & Putterman, Louis, 1993. "Theoretical and Empirical Studies of Producer Cooperatives: Will Ever the Twain Meet?," Journal of Economic Literature, American Economic Association, vol. 31(3), pages 1290-320, September.
  12. Tina L. Saitone & Richard J. Sexton, 2009. "Optimal Cooperative Pooling in a Quality-Differentiated Market," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1224-1232.
  13. Kostas Karantininis & Angelo Zago, 2001. "Endogenous Membership in Mixed Duopsonies," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(5), pages 1266-1272.
  14. Bruce A. Babcock & Quinn Weninger, 2004. "Can Quality Revitalize the Alaskan Salmon Industry?," Center for Agricultural and Rural Development (CARD) Publications 04-wp359, Center for Agricultural and Rural Development (CARD) at Iowa State University.
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