A Dynamic Theory of Cooperatives: The Link between Efficiency and Valuation

Lewis Evans and Graeme Guthrie

Journal of Institutional and Theoretical Economics (JITE), 2006, vol. 162, issue 2, 364-383

Abstract: We demonstrate that a multi-period model, and the valuations it implies, is essential for understanding inefficiency in cooperative organizational forms. Investment is efficient given the supply of input, but economic inefficiency arises because of over-supply of input induced by suppliers responding to average, rather than marginal, revenue. We show that inefficiency disappears if the cooperative's shares are priced at the present value of expected dividends and supplier entry and exit decisions are taken on the basis of profitability of membership. This pricing scheme simplifies cooperative governance by lowering transaction costs of governance with heterogeneous suppliers. We describe a functioning example.

JEL-codes: D21 D23 D71 D92 L22 L23 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (7)

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