Three aspects of property rights theory are particularly relevant to the conversion of the walnut-marketing cooperative, Diamond Walnut Growers (DWG), into a publicly traded stockholder-owned corporation. The horizon problem became apparent when DWG began investing heavily in branded, value-added products. The resulting need for additional member capital raised the free rider problem. The principal-agent problem was also relevant, given the increasing complexity of DWG’s financing and marketing activities. An additional economic issue surrounding the conversion was the monopsonistic situation created when members signed long-term marketing agreements with the new firm that was maximizing shareholder value, rather than grower returns.


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