Property rights and the investment behavior of U.S. Agricultural Cooperatives

Current economic theory describing the behavior and performance of agricultural cooperatives is not capable of addressing many of the crucial issues facing these institutions in today’s environment of declining government involvement in price and income support of U.S. agriculture. This dissertation seeks to incorporate those factors which uniquely define a cooperative as different from other forms of organizing business activity into a model of cooperative investment behavior.

In this study, the set of property rights governing ownership and control of cooperatives is identified and formally built into a neoclassical model of firm investment. The property rights approach is used to establish the core of a theory of cooperatives. This theory is used to construct a set of hypotheses about cooperative behavior, particularly with respect to investment behavior and the relative competitive position of cooperatives and competing forms of business organization. The approach lends insight into the economic incentives for forming cooperatives and the reasons why cooperative corporation ownership and control structures are unique from those observed in investor owned corporations.

The resulting analysis indicates four key issues impacting the cooperative institution’s ability to compete with investor owned firms in the agribusiness sector of the economy. These issues are (1) the decision control problem, (2) the common property problem, (3) the investment portfolio problem, and (4) the residual horizon problem. These conditions, if active, will act so as to restrain cooperatives from investing at the same rate and scope as investor owned firms.

Policy makers interested in promoting the role of cooperatives as an organizational form to assist and protect the interests of entrepreneurs such as farmers and at the same time provide an orderly and efficient flow of goods and services to consumers, need to understand the precise conditions of competitive environment, economic sector type, and investment requirements in which cooperatives will be able to fulfill these dual roles and those in which they cannot. Empirical research into these areas will require both case study and traditional quantitative approaches which permit in depth analysis of the hypotheses generated by this study which seek to explain and predict cooperative business organization behavior.