A DISCUSSION PAPER ON CANADIAN WHEAT BOARD GOVERNANCE

Crop Production/Industries, Institutional and Behavioral Economics,

NEW GENERATION CO-OPERATIVES: RESPONDING TO CHANGES IN AGRICULTURE

Agribusiness,

Cognitive Dissonance and Customer Allegiance in a Mixed Oligopoly

The purpose of this article is to examine the effect of cognitive dissonance in a mixed oligopoly where a local cooperative competes with an investor-owned firm (IOF) for the local market. The article explicitly incorporates individuals' beliefs regarding the quality of the two organizations as a choice variable in the utility function and individuals trade off utility from beliefs against utility resulting from their actions. The proposed model considers a case where managerial decisions or the introduction of new products forces consumers to modify their initial beliefs regarding the (superior) quality of their cooperative. Analytical results demonstrate the changes in equilibrium that result from cognitive dissonance.Consumer/Household Economics,

Cooperative Conversions, Failures and Restructurings: An Overview

The cases assembled in this special issue provide a rich setting for an examination of a number of cooperative conversion and restructurings that have occurred over the last 10 years. The cases also provide some lessons on the larger cooperative problems and questions in which cooperative researchers have been interested. The cases suggest that some of the conversions and restructurings are due to what can simply be called poor management, something that is not unique to co-ops, but is in fact common to all business enterprises regardless of their structure. At the same time, the cases also point out that common structural problems associated with cooperatives – such as lack of capital, property right problems and portfolio problems – do have an impact on the structure chosen by cooperatives and their members. Finally, a number of case-study authors point to increasing capital requirements in industrialized agriculture as a significant challenge for cooperatives seeking to integrate along the supply chain.Agribusiness,

INNOVATION ACTIVITY IN A MIXED OLIGOPOLY: THE ROLE OF CO-OPERATIVES

This paper develops a sequential game theoretic model of heterogeneous producers to examine the effect of co-operative involvement on innovation activity in the agricultural input-supplying sector. Analytical results show that the co-operative involvement in R&D can be welfare enhancing and, thus, socially desirable. The presence of the co-op can increase the arrival rate of innovations and productivity growth while reducing the prices of agricultural inputs. The effectiveness of the co-op is determined by the size of R&D costs.Agribusiness, Research and Development/Tech Change/Emerging Technologies,

DUAL MARKETING AND THE DECISIONS FACING WESTERN CANADIAN FARMERS FOR WHEAT AND BARLEY MARKETING: A BRIEF TO THE WESTERN GRAIN MARKETING PANEL

Crop Production/Industries, Marketing,

THE ECONOMICS OF DECOUPLED PAYMENTS IN THE PRESENCE OF CHEATING

This paper introduces enforcement costs and farmer misrepresentation into the economic analysis of decoupled area payments. When enforcement is costly, complete deterrence of cheating is never optimal from an economic perspective. Misrepresentation changes the welfare effects of the policy instrument, its transfer efficiency, and the socially optimal income redistribution.Institutional and Behavioral Economics,

Mental Frames and Organizational Decision-making: Facing the Challenges of Change

Adjusting to the strategic, business and economic changes requires efficient decision-making procedures which can in turn be highly affected by the underlying mental frames that the leaders of the organization hold. This article examines the impact of these mental frames on decision-making with respect to a specific attribute of a decision-making process: the belief that a CEO of a co-operative holds regarding member commitment. The analysis develops a simple theoretical model that shows how the co-op CEO’s obsolete mental frame creates distortions on decision making that can have negative effects on co-op’s strategic decisions and its market share. The starting point of the analysis is the case of the Saskatchewan Wheat Pool (SWP) – a Canadian grain handling, agri-food processing and marketing company that had little success in adapting to the changing economic environment of the Canadian agriculture.Industrial Organization,

Member Commitment and the Market and Financial Performance of the Saskatchewan Wheat Pool

Since 2001 several of the largest agricultural co-operatives in Western Canada and the United States have battled impending bankruptcy or ceased operations. In February 2001 Dairyworld Foods was bought out by Montreal dairy processor and cheese producer Saputo Inc. (Saputo; Toronto Stock Exchange). In November 2001, Agricore, formed through a 1998 merger of Alberta Wheat Pool Ltd. and Manitoba Pool Elevators, merged with United Grain Growers to form Agricore United (Agricore United). In the United States, AgWay and Farmland Industries filed for Chapter 11 bankruptcy protection in 2002 (Reuters, 2000), while the Saskatchewan Wheat Pool (hereinafter referred to as SWP or the Pool) underwent a massive debt restructuring in 2003 after four years of consecutive multi-million dollar net losses (SWP Annual Report, 2003). This decline in the market and financial performance of agricultural co-operatives has been associated with a decline in the commitment of the members to their co-operatives (Fulton, 1999; Fulton and Giannakas, 2001; Richards, Klein and Walburger, 1998; Burt and Wirth, 1990). The purpose of this article is to examine the market and financial performance of one of a number of co-operatives that have faced recent financial and market hardships, and to link this performance to member commitment. Specifically, the article examines whether the Pool’s declining market and financial performance is consistent with the predictions that emerge from a model that examines the impact of falling member commitment in a co-operative.Marketing,

IN SEARCH OF THE PRIVATELY OPTIMAL PATENT BREADTH

Innovating firms choose to patent their innovations when patenting allows the appropriation of more rents than do other forms of intellectual property protection (e.g., trade secrecy). The level of innovation rents that can be captured by the patent is mainly determined by the breadth of patent protection. Thus, once the decision to patent has been made, the innovator needs to make another important decision, namely, how broad of a patent protection to claim. While the innovator's decision to patent the innovation or to keep it a secret has been examined in the literature (Horstmann et al. 1985, Waterson 1990), there is no formal framework of analysis of the innovator's patent breadth choice. Instead, the traditional assumption in the economic literature is that the innovator has an incentive to claim 'as much as possible'. The effectiveness of this strategy in maximizing the rents that can be appropriated by the patentee is questionable, however. A patent that is too broad increases the likelihood of both infringement and patent validity challenges by competitors and/or third parties (Merges and Nelson 1990). Consequently, broad patent protection may reduce the effective patent life and thus the innovation rents that can be captured with the patent, since patents are often revoked during infringement trials and patent validity challenges (Merges and Nelson 1990, Barton 2000). This concern is especially critical given the increase in patent litigation during the last decade, particularly in the field of biotechnology, and the increase in the number of patents that are invalidated after being challenged. While the broadest possible patent may not be optimal, neither is a very narrow patent, since narrow patents make it easier for rivals to enter the patentee's market and may not allow the patentee to capture enough returns to cover her R&D costs. The purpose of this paper is to theoretically examine the patenting behavior of innovators that have generated patentable process innovations and have decided to seek patent protection. In specific, the paper determines the privately optimal patent breadth for process innovations when the innovator faces the probability of a direct patent validity challenge by a third party and potential entry in her market by competitors that provide technologically equivalent processes. The paper also examines the affect of patent breadth on the competitors' incentive to generate a competing process (i.e., on the competitors' R&D spending), on the competitors' probability of success in the R&D process (i.e., the patentee's ability to deter entry) and on the timing that success is realized by competitors (i.e., the pace of future innovations). The innovating firm's patent breadth decision is determined in a sequential game between an incumbent innovator who decides on the breadth of patent protection claimed and potential entrants who, having observed whether the patent was challenged or not, decide on whether to generate competing processes and how much to spend on R&D. The game is solved by backwards induction. Results show that the optimal patent breadth depends on the affect of new entry on the incumbent's profits, the incumbent's legal costs incurred when the patent is challenged and on whether the incumbent operates under a short term or a long term horizon. A key result of the paper is that, even when a patent breadth that deters entry exists, it might not be profit maximizing for the incumbent to choose this patent breadth to deter entry. As well, claiming the maximum breadth of patent protection is never an optimal strategy for the incumbent patentee in this model. The analysis shows that the nature of the instantaneous probability of success is a critical factor in determining the optimal patent breadth as well as the affect of patent breadth on the rivals' R&D spending, the probability of success by rivals and the timing that success occurs.Research and Development/Tech Change/Emerging Technologies,