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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.
Twenty-one papers explore the accomplishments, limitations, and unmet needs of the field of new institutional economics. Papers discuss the theories of the firm; contracts--from bilateral sets of incentives to the multilevel governance of relations; institutions and the institutional environment; human nature and institutional analysis; the "case" for case studies in new institutional economics; new institutional econometrics--the case of research on contracting and organization; experimental methodology to inform new institutional economics issues; game theory and institutions; new institutional economics, organization, and strategy; interfirm alliances--a new institutional economics approach; governance structure and contractual design in retail chains; make-or-buy decisions--a new institutional economics approach; transaction costs, property rights, and the tools of the new institutional economics--water rights and water markets; contracting and organization in food and agriculture; buying, lobbying, or suing--interest groups' participation in policy making--a selective survey; regulation and deregulation in network industry; constitutional political economy--analyzing formal institutions at the most elementary level; new institutional economics and its application on transition and developing economies; law and economics in retrospect; the theory of the firm and its critics--a stocktaking and assessment; and the causes of institutional inefficiency--a development perspective. Brousseau is Professor of Economics at the University of Paris X and Director of EconomiX. Glachant is Professor of Economics and Head of the Electricity Reforms Group in the ADIS Research Center at the University of Paris-Sud XI. Index.
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.