Cooperative CEO Identity and Efficient Governance: Member or Outside CEO?

Qiao Xin Liang and George Hendrikse

ERIM Report Series Research in Management from Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam

Abstract: A principal-agent model is formulated to capture the efficiency of cooperatives with a member CEO and cooperatives with an employed outsider as CEO. Results of the model show that the incentive strength regarding the member CEO is stronger compared to that of the outside CEO in order to shift some effort of the member CEO from individual farming into the task of adding value to the cooperative enterprise. A cooperative with a member CEO is uniquely efficient when upstream and downstream tasks are substitutes to a certain extent, or complements. When the tasks are substitutes, the efficient CEO identity depends on the strength of the substitution effect and the difference of the marginal productivities between the two tasks. The scope of cooperatives with a member CEO being efficient becomes smaller when the substitution effect is at an intermediate level or the productivity difference between the two tasks is limited.

Keywords: cooperatives; efficiency; governance; principal-agent model (search for similar items in EconPapers)
JEL-codes: D21 M00 Q13 (search for similar items in EconPapers)
Date: 2012-11-22
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