An Endogenous Group Formation Theory of Co-operative Networks: The Economics of La Lega and Mondragón

Sumit Joshi and Stephen Smith

No DP2002-87, WIDER Working Paper Series from World Institute for Development Economic Research (UNU-WIDER)

Abstract: This paper develops a theory of endogenous league formation and considers its implications for policy in developing countries. We generalize from features of the two most prominent European co-op leagues, Mondragón and La Lega, to develop the first formal model of the endogenous formation of co-operative networks and their constituent member coops. We show that if co-op leagues are formed through an open membership game, there can be two Nash equilibria, one with and one without a co-op league; and in this case, the equilibrium with a co-op league Pareto dominates the latter.

Keywords: Business networks; Cooperative societies; Game theory; Labour movement; Wages (search for similar items in EconPapers)
Date: 2002
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