Uncertainties And Governance Structure In Incentives Provision For Product Quality

This paper compares the product quality provision of cooperatives and investor owned firms (IOFs) by highlighting the impacts of uncertainties in agricultural production and marketing, and farmers’ risk aversion. In a principal-agent model, we show that the linear contract can shift the risk of market uncertainty from farmers to processors, and pooling can share the risk of production uncertainty among cooperative members. Complete pooling places the cooperative at a disadvantage relative to the IOF in a quality-differentiated market due to the loss of free-riding dominating the gain of risk-sharing. Product quality of cooperatives decreases when the membership size increases. Cooperatives can overcome this disadvantage by partial pooling. Product quality of cooperatives will be equivalent to that of IOFs when an optimal income rights structure with partial pooling is adopted

Internal social capital and the life cycle of agricultural cooperatives

This paper provides an integrated analysis of the structural, relational, and cognitive dimensions of social capital in cooperatives. The social capital concept is integrated with cooperative lifecycle theory to describe the change of cooperative social capital along the lifecycle. We propose that cooperatives in different stages of the lifecycle are featured with different levels of social capital. Cooperatives usually enjoy a high level of social capital in the early stages of the lifecycle. However, the level of social capital in cooperatives exhibits a declining trend along the development of the organization. The decrease of social capital will lead to an imbalance of the social and economic attributes of cooperatives. The cooperative’s governance structure must change accordingly. We argue that it is important for cooperatives to maintain and develop the social capital strategically over time. Otherwise, the comparative advantage of the cooperative business form may disappear

Communication and Innovation in Cooperatives

Cooperatives differ in their intensity of horizontal and vertical communications, their innovation policies, and their centralization of decision-making power. We aim to establish relationships between these communication, innovation, and decision-making aspects of cooperatives, and to identify the circumstances when a particular configuration adds most value. Horizontal and vertical communications are analyzed in a decentralized and centralized cooperative. Horizontal communication (HC) is characterized as the exchange of information between farmers in the society of members. It is associated with process innovation. Vertical communication (VC) is the exchange of information between a member and the CEO of the cooperative enterprise. It is associated with product innovation. The CEO decides regarding the deliveries of the member and the level of vertical communication in the centralized cooperative, while these decisions are taken by the members in the decentralized cooperative. We establish that the decentralized cooperative is efficient at an intermediate level of the VC cost coefficient and when the HC cost coefficient is above a certain level, while the centralized cooperative is efficient in the other cases