Are Cooperatives Efficient When Membership is Voluntary?

By: Leathers, Howard D.


Leathers, Howard D., Are Cooperatives Efficient When Membership is Voluntary?, Journal of Agricultural and Resource Economics, Volume 31, Issue 3, December 2006, Pages 667-676

If profit-maximizing farmers are free to join or not to join a cooperative, it may appear reasonable to assume that a cooperative will exist only when it has cost advantaged over non-cooperative marketing. This paper presents a model in which that result fails. Every individual farmer chooses either to join or not join a cooperative depending on whether transactions costs are lower from cooperative membership or nonmembership. As cooperative membership increases, transactions costs for members decline, but for nonmembers these costs increase. Results of this analysis reveal that an equilibrium exists in which all farmers voluntarily choose to join the cooperative, but more than half of the members wish the cooperative had not been formed, and transactions costs in the aggregate are higher with the cooperative then without it.