COOPERATIVE FORMATION AND FINANCIAL CONTRACTING IN AGRICULTURAL MARKETS

Cooperative formation in agriculture sometimes occurs in response to the exit of a private firm and typically requires substantial equity investment by participating farmers. What economic rationale can explain why farmers are willing to contribute capital to an activity that (apparently) fails to attract non-farm or "private" investment? We hypothesize that farm capital is high cost, relative to that provided by private entrepreneurs (or in other words, that there is a degree of asset fixity in farm capital) but that it engenders greater organizational commitment-which is particularly important when expected market returns are low-on the part of producers. This commitment arises from the indirect incentive properties associated with at-risk capital. We identify market environments where these incentives are necessary for firm survival and interpret the efficient financial contract in this context as a "cooperative."


Subject(s):
Issue Date:
2003
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/18478
Total Pages:
18
Series Statement:
CARD Working Paper 03-WP 349




 Record created 2017-04-01, last modified 2017-08-24

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