What were the previous theories for co-ops?
- Wave
- Wind-it-up
- Pacemaker
- Mop-up
What is the wave theory of coops?
Waves of start-ups followed by waves of failures.
What is the Wind-it-up theory of co-ops?
Co-op existence fixes market failure, which renders co-op obsolete.
What is the Pacemaker theory of co-ops?
Co-op existence causes market to be competitive, which is why members keep it around.
What is the Mop-Up theory of co-ops?
Static and declining markets attract opportunism, so producers and consumers create coops to protect themselves
What are the five stages of the co-op life cycle according to Cook?
- Formation
- Infancy
- Correction/amelioration of market failures
- Decision makers become aware of property rights issues
- Decision gets made
What are the 7 types of co-ops dealt with in the Michael Cook article?
- Farm Credits
- Rural Utilities
* ^^these two just touched on briefly* - Nourse I & II
- Sapiro I to III
What is a Nourse I co-op?
- local cooperatives (epitomize Nourse theory of cooperation)
- Yardstick to keep IOFs competitive
- Operate where natural monopolies / monopsonies may occur due to economies of scale
- Issues:
a) Free Rider
b) Horizon
c) Influence Cost
What is a Nourse II co-op?
- Regional
- Competitive yardstick
- Forward or backward integration
- Often federated or centralized
- Little probability of natural monopolies in these spaces
- Issues: everything except free riders
What is a Sapiro I co-op?
- bargaining (address market failures through horizontal integration)
- Sapiro I goals:
i) Increase margins
ii) Guarantee a market especially with
perishables - Issues: free rider
What is a Sapiro II co-op?
- marketing coops: producer vertical integration
i) Single commodity
ii) Multiple commodity - Goals:
◊ Increase margins
◊ Avoid market power of IOFs - Issues:
◊ Portfolio
◊ Control
What is a Sapiro III co-op?
Minimal issues from any of the five property right constraint issues
What are the five problems co-ops can run into according to Cook?
- Free rider
- Horizon
- Portfolio
- Control
- Influence Cost
Explain stage 3 of a co-op life cycle (correction/amelioration of market failures)
- Competitor strategies change
- Which means prices differ little between coop and IOF, so members start to scrutinize coop more
- Coop structure gets more complex
- Conflicts over residual claims and decision control arise
What’s the free-rider problem?
- non-members benefiting
- New and old members getting same residual rights = diluted ROI for old members
What’s the horizon problem?
- Member’s residual claim is shorter than productive life of the asset that generated that income
- Residual rights not easily transferred
- Members stop contributing to growth opportunities and start eating into retained earnings by putting pressure on coop to pay out earnings.
What’s the portfolio problem?
- Member retained earnings = investment portfolio that lacks transferability, liquidity or appreciation.
- Members seek to control risk which limits co-op to low ROI investments (lower risk)
What is the control problem?
- Agent-principal
- lack of secondary market info (like TSX / NYSE would provide)
What’s the influence cost problem?
- diverse activities lead to conflicts of interest
- severity depends on:
* existence of a central authority
* decision procedures
* degree of conflicts of interest
In stage 5 of a co-op life cycle, where a decision must be made, what are the three possible decisions?
Exit
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