The Advantage of Cooperatives under Asymmetric Cost Information



The cooperative (CO) solution will therefore be

a∞( X f $ if<⅛≤P SCO,} = f P ■ «У if ciP y.

91 ' ' ɪ 0 otherwise * ' ' ɪ 0 otherwise

i.e. the cooperative leads to the socially optimal solution from the last sec-
tion.

One interpretation of Proposition 2 is therefore that in a not too profitable
market, i.e. when p
≤ cjz Vi, the socially Optimalproduction levels are imple-
mentable if and only if the surplus is shared as in a cooperative modula zero
mean lotteries.
This provides an information economic rationale for cooper-
atives. Cooperatives not only suffices to give the socially optimal production
levels. Except for zero mean lotteries, cooperative sharing of the net revenue
product is necessary also to ensure optimality. In any other organization, the
farmers’ attempts to extract informational rents will lead to a loss of desir-
able production. Note that contrary to the traditional under-production or
under-investment problem resulting from a hold-up possibility under perfect
information, cf. the Introduction, the present potential under-production
problem cannot be handled by ar priori negotiation of the contracts. Long or
short contracts, any attempt to divert any of the surplus from the farmers -
or any attempt to share the surplus in any other way than proportional to
patronage - will lead to sub-optimal production.

In a more profitable market, i.e. when p > c-z, the cooperative still leads
to the social optimum. But there are other possibilities as emphasized by
Proposition 3. There is some room for a paying the processor non-zero profit
- or for paying a non-zero interest on the cooperative equity. There is also
some room for payments that are not proportional to partronage. The room
for variations which do not eliminate the social optimality of cooperative-like
arrangements is given by ∑j=p>cy(P ~       c.f.(4).

5 Investor Owned Processor

Let us assume now that the processor is an investor owned, risk neutral profit
maximizing monopsonist. Being a monopsonist, we assume that the proces-
sor has all the bargaining power. Specifically, he is able to offer contracts on
a take it or leave it basis and to commit to these contracts as information is
revealed.



More intriguing information

1. ISSUES AND PROBLEMS OF IMMEDIATE CONCERN
2. Innovation Trajectories in Honduras’ Coffee Value Chain. Public and Private Influence on the Use of New Knowledge and Technology among Coffee Growers
3. FUTURE TRADE RESEARCH AREAS THAT MATTER TO DEVELOPING COUNTRY POLICYMAKERS
4. Popular Conceptions of Nationhood in Old and New European
5. Estimating the Economic Value of Specific Characteristics Associated with Angus Bulls Sold at Auction
6. The name is absent
7. Three Policies to Improve Productivity Growth in Canada
8. ‘Goodwill is not enough’
9. Une Classe de Concepts
10. Reputations, Market Structure, and the Choice of Quality Assurance Systems in the Food Industry
11. EMU's Decentralized System of Fiscal Policy
12. The name is absent
13. The name is absent
14. On the Existence of the Moments of the Asymptotic Trace Statistic
15. The name is absent
16. The name is absent
17. HACCP AND MEAT AND POULTRY INSPECTION
18. Does Competition Increase Economic Efficiency in Swedish County Councils?
19. The name is absent
20. The name is absent