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Abstract

We consider how to organize the processing and marketing of an agricultural product when farming costs are known only by the individual farmers. We show that when marginal costs are un-correlated, the market for …nal goods is competitive, and the market for processing is non-competitive, the socially optimal production levels are sustained by a cooperative and a cooperative only. We show also that the cooperative form is particularly useful when the cost uncertainty is large and the net average revenue product is small.

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