The Advantage of Cooperatives under
Asymmetric Cost Information
Peter Bogetoft, Peter M.F. Jensen and René H. Olsen
Department of Economics
Royal Agricultural University (KVL)
26 Rolighedsvej, DK-1958 Frederiksberg C
Denmark
e-mails: [email protected], [email protected], [email protected]
January 1999
Abstract
We consider how to organize the processing and marketing of an
agricultural product when farming costs are known only by the indi-
vidual farmers. We show that when marginal costs are un-eorreɪated
and the market for final goods is competitive, the socially optimal pro-
duction levels may be sustained by a cooperative and a cooperative
only. We show also that the cooperative form is particularly useful
when the uncertainty is large and the net revenue product is small.
Keywords: Economics of Cooperatives, Asymmetric Informa-
tion, Incentives.
1 Introduction
A cooperative’s primary trading partners are the members which are also the
residual claimants. This suggests that a cooperative may have comparative
advantages in terms of incentive compatibility.
Staatz(1984) among others have argued that the risk of post-harvest
’hold-ups’ is a primary reason for cooperatives active presence in the mar-
keting of short lived products like fruits, vegetables and milk. On the other