Perspectives from New Institutional Economics
Edited by Claude Ménard
Chapter 22: Ill-defined property rights in collective action: the case of US agricultural cooperatives
Ill-deﬁned property rights in collective action 335 22. Ill-deﬁned property rights in collective action: the case of US agricultural cooperatives Michael L. Cook and Constantine Iliopoulos THE COOPERATIVE INVESTMENT PROBLEM Cooperatives are a prominent business organizational form in the world agrifood system. In Europe, cooperatives in most countries control market shares often exceeding 50 percent in numerous agri-food categories. In the United States, cooperatives market 32 percent of the commodities and products produced and processed in the agri-food chain – equivalent to more than US$100 billion annually. Currently, ﬁrms including cooperatives operating in the US agricultural and food industries and chains are experiencing (i) price and risk augmenting deregulation, (ii) more contractually complete vertical coordination, (iii) accelerated horizontal and vertical rationalization, and (iv) increased capital/ knowledge factor intensity. It is this increased need for equity capital that is complicating cooperative growth plans. Equity capital acquisition has long been cited as a problem for cooperatives (Hansmann 1996; Hart and Moore 1998; Olson 1971; Cook 1995). In cooperatives, member–patrons usually contribute equity capital through patronage methods rather than explicit investment methods. In the USA the actual capital acquisition method utilized is determined by the type and function of the cooperative. Equity capital acquisition in cooperatives is viewed as a constraint because of the existence of the free-rider, horizon and portfolio problems.1 These problems emerge because in most traditional cooperatives, ownership per se conveys no beneﬁt; instead beneﬁt is obtained only when members patronize the cooperative. Each of...
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