Cooperative Formation and Financial Contracting in Agricultural Markets
Cooperative formation in agriculture sometimes occurs in response to the exit of a private firm and typically requires substantial equity investment by participating farmers. What economic rationale can explain why farmers are willing to contribute capital to an activity that fails to attract non-farm, "private" investment? We hypothesize that doing so is a costly mechanism for increasing the maximum penalty farmers face in the case of business failure. For a given market environment, exposing farmers to this risk increases the amount of surplus that can be used to repay lenders, thus expanding the set of market environments in which financing is available. We show how equity investment of this sort can be an efficient organizational response to a reduction in expected market returns and interpret the resulting financial contract as a "cooperative."
|Date of creation:||Oct 2004|
|Date of revision:|
|Contact details of provider:|| Postal: 578 Heady Hall, Ames, Iowa 50011-1070|
Phone: (515) 294-1183
Fax: (515) 294-6336
Web page: http://www.card.iastate.edu/
More information through EDIRC
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.:
- 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.
- 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.
- David A. Hennessy, 1996.
"Information Asymmetry as a Reason for Food Industry Vertical Integration,"
American Journal of Agricultural Economics,
Agricultural and Applied Economics Association, vol. 78(4), pages 1034-1043.
- Hennessy, David A., 1996. "Information Asymmetry As a Reason for Food Industry Vertical Integration," Staff General Research Papers 5032, Iowa State University, Department of Economics.
- 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.
- Melkonian, Tigran A., 2004. "Quality Measurement and Contract Design: Evidence from the North American Sugar Beet Industry," Staff General Research Papers 12350, Iowa State University, Department of Economics.
- Dow,Gregory K., 2003.
"Governing the Firm,"
Cambridge University Press, number 9780521522212, June.
- Chan, Yuk-Shee & Kanatas, George, 1985. "Asymmetric Valuations and the Role of Collateral in Loan Agreements," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(1), pages 84-95, February.
- Hueth, Brent & Ligon, Ethan, 1999.
"Producer Price Risk and Quality Measurement,"
Staff General Research Papers
5037, Iowa State University, Department of Economics.
- Peter Bogetoft & Henrik Ballebye Olesen, 2003.
"Incentives, Information Systems, and Competition,"
American Journal of Agricultural Economics,
Agricultural and Applied Economics Association, vol. 85(1), pages 234-247.
- Martinez, Stephen W., 1999. "Vertical Coordination in the Pork and Broiler Industries: Implications for Pork and Chicken Products," Agricultural Economics Reports 34031, United States Department of Agriculture, Economic Research Service.
- Parliament, Claudia & Lerman, Zvi & Fulton, Joan R., 1990. "Performance of Cooperatives and Investor-Owned Firms in the Dairy Industry," Journal of Agricultural Cooperation, National Council of Farmer Cooperatives, vol. 5.
- Harris, Andrea & Stefanson, Brenda & Fulton, Murray E., 1996. "New Generation Cooperatives and Cooperative Theory," Journal of Cooperatives, NCERA-210, vol. 11.
- 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.
- Stafford, Thomas H. & Roof, James B., 1984. "Marketing Operations of Dairy Cooperatives," Research Reports 52025, United States Department of Agriculture, Rural Development Business and Cooperative Programs.
- 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.
When requesting a correction, please mention this item's handle: RePEc:ias:cpaper:03-wp349. 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.