Sesmero, Juan

September, 2016

By: Giannakas, Konstantinos; Fulton, Murray; Sesmero, Juan
This paper develops a model of heterogeneous individuals to analyze the interacting horizon and free-rider problems faced by cooperative organizations. Analytical results identify the conditions under which a cooperative will form despite these property rights problems and show that (i) differences in members’ time horizons need not necessarily lead to short-term cooperative investments and (ii) free riding is not always a problem for cooperatives. The analysis also shows how a cooperative can use a membership fee to address these property rights problems and provides additional insights into the relationship between a cooperative’s cost structure and membership fees.