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Abstract
This article values the debt of an input cooperative that procures a single
commodity from farmers and then processes and markets the output, and an
otherwise identical firm structured as an investor-owned firm (IOF) using the
Black-Scholes option pricing model. The major conclusion of this article is that a
cooperative can be designed to be safer for lenders, which implies a lower cost of
debt, than an otherwise identical firm structured as an IOF. This conclusion is a
logical consequence of the difference between the residual claims of the owners
of cooperatives and of IOFs.