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Why are cooperatives important in agriculture? An organizational economics perspective

Published online by Cambridge University Press:  01 April 2007

VLADISLAV VALENTINOV
VLADISLAV VALENTINOV*
Affiliation:
Leibniz Institute of Agricultural Development in Central and Eastern Europe, Halle, Germany
*
*Leibniz Institute of Agricultural Development in Central and Eastern Europe, Theodor-Lieser-Strasse 2, 06120 Halle, Germany. Email: valentinov@iamo.de.
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Abstract:

This paper develops an organizational economics explanation for agricultural cooperatives by building upon the transaction cost theory of family farms. According to this theory, the importance of family farms in Western agriculture is a result of the low feasibility of hierarchical organization in agricultural production due to supervision and monitoring difficulties. This paper argues that the transaction cost-economizing effect of family farms has a price in the form of their limited ability to realize economies of scale and to develop market power comparable to that of their up- and downstream trading partners. The role of agricultural cooperatives is shown to help overcome these limitations in order to take advantage of the transaction-cost economizing properties of family farms. This explanation of agricultural cooperatives is sector-specific in the sense that it traces the benefits of cooperative organization back to the organizational attributes of agricultural production.

Type
Research Article
Information
Journal of Institutional Economics , Volume 3 , Issue 1 , April 2007 , pp. 55 - 69
Copyright
Copyright © The JOIE Foundation 2006

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Footnotes

This research has been supported by Marie Curie Incoming International Fellowship of the Sixth Framework Program of the European Community (Contract No. MIF1-CT-2005-514036). The European Commission is not liable for any use that may be made of this publication. The author is grateful to Geoffrey M. Hodgson and two anonymous referees for helpful comments.

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