The Cooperative Firm as Monitored Credit
We develop a financial-contracting theory of the cooperative fim where production requires three generic tasks: working, managing, and monitoring. Workers provide an intermediate input (or labor directly); managers convert the workers' input into a final output; and directors monitor managers. We model the cooperative firm by letting the workers act also as directors. We show how bundling the labor and monitoring tasks can expand the scope for equilibrium market activity, even when doing so results in a strictly positive deadweight loss. Our theory provides new insight with respect to a substantial theoretical and empirical literature on the "life cycle" of worker-managed firms, and with respect to a complementary body of anecdotal evidence on the causes of worker buyouts and cooperative "degeneration". Our theory is also consistent with differences between the board compensation policies of cooperative firms, where members typically receive little more than travel and per-diem reimbursements, and of investor-owned firms, where members receive substantial pay often based in part on firm financial performance.
|Date of creation:||Jun 2007|
|Date of revision:|
|Contact details of provider:|| Postal: 427 Lorch Street, Madison, WI 53706-1503|
Web page: http://www.aae.wisc.edu/pubs/sps/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fulton, Murray E. & Ketilson, Lou Hammond, 1992. "The Role of Cooperatives in Communities: Examples from Saskatchewan," Journal of Agricultural Cooperation, National Council of Farmer Cooperatives, vol. 7.
- Oliver Hart & John Moore, 1998.
"Cooperatives vs. Outside Ownership,"
Harvard Institute of Economic Research Working Papers
1816, Harvard - Institute of Economic Research.
- Oliver Hart & John Moore, 1998. "Cooperatives vs. Outside Ownership," NBER Working Papers 6421, National Bureau of Economic Research, Inc.
- Oliver Hart & John Moore, 1998. "Cooperatives vs. Outside Ownership," ESE Discussion Papers 114, Edinburgh School of Economics, University of Edinburgh.
- Oliver Hart & John Moore, 1998. "Cooperatives vs. outside ownership," LSE Research Online Documents on Economics 19360, London School of Economics and Political Science, LSE Library.
- Oliver Hart & John Moore, 1998. "Cooperatives vs. Outside Ownership," STICERD - Theoretical Economics Paper Series 346, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- 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.
- Guinnane, T. & Banerjee, A. & Besley, T., 1993.
"Thy Neighbor's Keeper: the Design of a Credit Cooperative with Theory and a Test,"
705, Yale - Economic Growth Center.
- Abhijit V. Banerjee & Timothy Besley & Timothy W. Guinnane, 1994. "Thy Neighbor's Keeper: The Design of a Credit Cooperative with Theory and a Test," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 491-515.
- Dow,Gregory K., 2003.
"Governing the Firm,"
Cambridge University Press, number 9780521522212, 1.
- Bengt Holmstrom & Jean Tirole, 1997. "Financial Intermediation, Loanable Funds, and The Real Sector," The Quarterly Journal of Economics, Oxford University Press, vol. 112(3), pages 663-691.
- Gregory K. Dow, 2000.
"Allocating Control Over Firms: Stock Markets Versus Membership Markets,"
dp00-03, Department of Economics, Simon Fraser University, revised Feb 2000.
- Gregory Dow, 2001. "Allocating Control over Firms: Stock Markets versus Membership Markets," Review of Industrial Organization, Springer, vol. 18(2), pages 201-218, March.
- Ben-ner, Avner, 1988. "The life cycle of worker-owned firms in market economies : A theoretical analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 10(3), pages 287-313, October.
- Besanko, David & Kanatas, George, 1993. "Credit Market Equilibrium with Bank Monitoring and Moral Hazard," Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 213-32.
- Itoh, Hideshi, 1994. "Job design, delegation and cooperation: A principal-agent analysis," European Economic Review, Elsevier, vol. 38(3-4), pages 691-700, April.
- Aghion, Philippe & Bolton, P. & Tirole, J., 2004.
"Exit Options in Corporate Finance: Liquidity versus Incentives,"
12500289, Harvard University Department of Economics.
- Philippe Aghion & Patrick Bolton & Jean Tirole, 2004. "Exit Options in Corporate Finance: Liquidity versus Incentives," Review of Finance, Springer, vol. 8(3), pages 327-353.
- Murray Fulton & Konstantinos Giannakas, 2001. "Organizational Commitment in a Mixed Oligopoly: Agricultural Cooperatives and Investor-Owned Firms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(5), pages 1258-1265.
- 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.
- Schmitz, Patrick W, 2005.
"Allocating Control in Agency Problems with Limited Liability and Sequential Hidden Actions,"
CEPR Discussion Papers
5145, C.E.P.R. Discussion Papers.
- Patrick W. Schmitz, 2005. "Allocating Control in Agency Problems with Limited Liability and Sequential Hidden Actions," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 318-336, Summer.
- Patrick W. Schmitz, 2005. "Allocating control in agency problems with limited liability and sequential hidden actions," Bonn Econ Discussion Papers bgse27_2005, University of Bonn, Germany.
- Jonathan Levin & Steven Tadelis, 2005. "Profit Sharing and the Role of Professional Partnerships," The Quarterly Journal of Economics, Oxford University Press, vol. 120(1), pages 131-171.
- Dow, Gregory K. & Putterman, Louis, 2000. "Why capital suppliers (usually) hire workers: what we know and what we need to know," Journal of Economic Behavior & Organization, Elsevier, vol. 43(3), pages 319-336, November.
- Ben-Ner, Avner & Jun, Byoung, 1996. "Employee Buyout in a Bargaining Game with Asymmetric Information," American Economic Review, American Economic Association, vol. 86(3), pages 502-23, June.
- Sinclair-Desgagne, Bernard, 1999. "How to Restore Higher-Powered Incentives in Multitask Agencies," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(2), pages 418-33, July.
- Laux, Christian, 2001. "Limited-Liability and Incentive Contracting with Multiple Projects," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 514-26, Autumn.
- Roberta Dessï¾’, 2005. "Start-Up Finance, Monitoring, and Collusion," RAND Journal of Economics, The RAND Corporation, vol. 36(2), pages 255-274, Summer.
- Dessi, Roberta, 2004. "Start-up Finance, Monitoring and Collusion," IDEI Working Papers 264, Institut d'Économie Industrielle (IDEI), Toulouse.
- Steven J. Holland & Robert P. King, 2004. "Trading Mechanisms for New-Generation Cooperative Stock: The Architecture of Organizational Formation and Demise," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(5), pages 1262-1268.
- Fabio R. Chaddad & Michael L. Cook, 2004. "Understanding New Cooperative Models: An Ownership–Control Rights Typology," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 26(3), pages 348-360.
When requesting a correction, please mention this item's handle: RePEc:ecl:wisagr:508. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.