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This paper addresses the issue of how intra-organizational incentive alignment mechanisms evolve to solve the free rider problem in collective bargaining. We focus on agricultural bargaining cooperatives (ABCs), a particular form of producer-owned firms mainly observed in the West Coast states of the US. These organizations play several crucial institutional roles that include, among others, enhancing farmers’ countervailing power vis-à-vis powerful processors, deterring postcontractual opportunism, enabling price discovery, and ameliorating moral hazard and adverse selection problems. The single most important factor that constrains ABCs’ ability to play such roles is the free rider problem. The latter refers to the situation where a non-member receives benefits associated with the provision of public goods by the cooperative (e.g., higher commodity prices), but avoids becoming a member—and thus eschews contributing to the costs associated with this provision, which are incurred by members alone. We review quantitative and qualitative evidence collected for more than ten years from ABCs to explore the evolution of solution instruments used to align member incentives and thus minimize the inefficiencies arising from the free rider problem. The obtained results suggest that mechanisms evolve from Market to Community to Contract to Hierarchy solutions. In organizations characterized by highly heterogeneous memberships the provision of a combination of intra-organizational incentives is the only means to addressing the free rider problem efficiently.
Historically and in various parts of the world, traditional agricultural cooperatives have played a significant role in correcting market failures, contributing to the achievement of rural development goals, the generation of local social capital, and the provision of incentives for sustaining the environment. However, agribusiness globalization-induced challenges coupled by intra-organisational hurdles have led to the need for a radical redesign of this unique organisational arrangement. The term used to describe the resulting offensive organisations is “collective entrepreneurship.” The goals of this paper are to 1) identify and discuss challenges and critical issues that arise as traditional co-operatives move toward becoming collective entrepreneurship firms, 2) outline a scholarly research whose topics are linked to these challenges, and 3) introduce Complexity Economics as an emerging theoretical framework that might inform the identified research questions.
This paper provides a detailed profile of traditional and new generation US agricultural cooperatives. Based on a recent, unique survey of the Chief Executive Officers and other key top management personnel we describe the major organizational, financial, and ownership characteristics of the top 100 US agricultural cooperatives in terms of operating revenues. The quantitative and qualitative data obtained through a mail survey is clustered into five types: (i) information on the property rights structure adopted, (ii) financial information on equity acquisition methods, equity redemption plans, R&D investment, and investment in intangible assets, (iii) organizational design information, (iv) information on members’ and Board of Directors’ behavior, and (v) information on top management behavior and perception of critical issues. We report both descriptive and inferential statistics. The results suggest that, unlike new generation cooperatives, traditional US agricultural cooperatives have adopted organizational structures that may constrain them in ameliorating their free rider, horizon, and portfolio problems.
Cooperatives have a difficult problem in acquiring equity capital because the residual claimant (benefactor) is the patron of the firm, not the investor. This leads to cooperative investment problems described in this paper: a) the free rider problem, b) the horizon problem, and c) the portfolio problem. Empirical analysis utilizing a latent variable structural equation model and a large dual response survey suggests that member-patrons are more likely to invest in cooperatives which adopt well defined property rights policies and structures than traditional cooperatives characterized by ill-defined property right structures.
Existing research treats the cooperative structure as relatively homogeneous. The proposed paper argues that all cooperatives are not created equal – and consideration of organizational structure is critical when analyzing the economic impact of cooperation. In recent empirical work, we observe cooperatives forming as single- or multi-purpose; generating equity capital passively, quasi-passively, or proactively; vertically integrating in a centralized, federated, or a hybrid fashion; governing through fixed or proportional control rights; and instituting open, closed or class-varying membership criteria. The emergence of multiple-level rent-seeking cooperatives challenges our traditional rent dispersion models of collective action. We call these multi-level, patron, rent-seeking entities a form of collective entrepreneurship. This paper develops a set of criteria enabling us to distinguish between traditional forms of cooperation and collective entrepreneurship. We employ these characteristics to analyze and contrast these two extreme forms of collective action. We propose a continuum from single-level rent seeking, traditional, patron, user-driven cooperative forms; through forms of hybrids and macrohierarchies; to multiple-level rent seeking, patron, user-investor-driven collective entrepreneurship.
This paper explores the cross-fertilization potential that exists between the economic theory of agricultural cooperatives and that of nonprofit organizations. A number of central ideas in the agricultural cooperative theory are shown to generate two novel insights pertaining to the nonprofit economics literature. First, as with agricultural cooperatives, nonprofit organizations can be conceptualized not only as firms but also as service agencies and stakeholder coalitions. Second, the demand-side economic justification of nonprofit organizations, like that of agricultural cooperatives, likely includes reasons other than market failure. The paper concludes by calling for research on how nonprofit economics can inform the theory of agricultural cooperatives.