Hostname: page-component-848d4c4894-pjpqr Total loading time: 0 Render date: 2024-06-25T18:01:34.376Z Has data issue: false hasContentIssue false

What Makes Cooperatives Successful? Identifying the Determinants of Their Organizational Performance

Published online by Cambridge University Press:  12 September 2018

Patrizia Fanasch*
Affiliation:
Paderborn University, Management Department, Warburger Strasse 100, 33098 Paderborn, Germany
Bernd Frick
Affiliation:
Paderborn University, Management Department, Warburger Strasse 100, 33098 Paderborn, Germany; and Castle Seeburg University, Department of Sport Economics and Sport Marketing, Seeburgstrasse 8, 5201 Seekirchen/Salzburg, Austria; e-mail: bernd.frick@uni-paderborn.de.
*
e-mail: patrizia.fanasch@uni-paderborn.de (corresponding author).

Abstract

In comparison with other organizational forms, cooperatives have been found to offer poor product quality and suffer from low reputation. The main reasons discussed in the literature are information asymmetries, which leads to adverse selection and moral hazard, as well as the absence of profit orientation due to poorly specified and diluted property rights. However, although, in reality, many cooperatives indeed perform poorly, and some are apparently able to completely avoid or at least reduce the problems that are considered prototypical for this hybrid organizational form. Therefore, the purpose of this study is to identify the characteristics required to reduce the problems resulting from poorly specified property rights and information asymmetries and, hence, to successfully compete in the market. The data we use to identify the characteristics that separate “good” and “bad” cooperatives encompass 136 organizations in Austria, Germany, and northern Italy. Our logistic regression estimations show that older and larger cooperatives (in terms of acreage) have a significantly higher probability to be listed in at least one of two highly respected wine guides. Moreover, German cooperatives have a significantly lower probability of being listed than either Austrian or northern Italian cooperatives. The findings suggest that differences in performance can be explained by the management of cooperatives. (JEL Classifications: D23, D82, D86, J54, L22, L25, L66, P13, Q13)

Type
Guest Editor Günter Schamel: Symposium “Organization and Performance of Cooperative Firms in the Wine Sector”
Copyright
Copyright © American Association of Wine Economists 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We are indebted to an anonymous reviewer for comments and suggestions that helped to improve the paper. We also thank the participants at the AAWE Workshop in Bolzano 2017 and especially Christoph Weiss for their feedback. Moreover, we are particularly grateful to Günter Schamel for providing additional data. Any remaining errors or omissions are the responsibility of the authors.

References

Agbo, M., Rousselière, D., and Salanié, J. (2015). Agricultural marketing cooperatives with direct selling: A cooperative-non-cooperative game. Journal of Economic Behavior and Organization, 109, 5671.Google Scholar
Albæk, S., and Schultz, C. (1998). On the relative advantage of cooperatives. Economics Letters, 59(3), 397401.Google Scholar
Albanese, M., Navarra, C., and Tortia, E. C. (2015). Employer moral hazard and wage rigidity. The case of worker owned and investor owned firms. International Review of Law and Economics, 43, 227237.Google Scholar
Alchian, A. A., and Demsetz, H. (1972). Production, information costs, and economic organization. American Economic Review, 62(5), 777795.Google Scholar
Alessandrini, M., and Messori, M. (2016). Workers’ effort: A comparison between capitalist and cooperative firms. Theoretical Economics Letters, 6(3), 601620.Google Scholar
Barros, C. P., and Santos, J. C. G. (2007). Comparing the productive efficiency of cooperatives and private enterprises: The Portuguese wine industry as a case study. Journal of Rural Cooperation, 35(2), 109122.Google Scholar
Ben-Ner, A. (1987). Producer cooperatives: Why do they exist in capitalist economies? In Steinberg, R., and Powell, W. W. (eds.), The Nonprofit Sector: A Research Handbook, 434449. New Haven, CT: Yale University Press.Google Scholar
Bloom, N., and Van Reenen, J. (2007). Measuring and explaining management practices across firms and countries. Quarterly Journal of Economics, 122(4), 13511408.Google Scholar
Bloom, N., and Van Reenen, J. (2010). Why do management practices differ across firms and countries? Journal of Economic Perspectives, 24(1), 203224.Google Scholar
Bloom, N., Genakos, C., Sadun, R., and Van Reenen, J. (2012). Management practices across firms and countries. Academy of Management Perspectives, 26(1), 1233.Google Scholar
Bloom, N., Sadun, R., and Van Reenen, J. (2012). The organization of firms across countries. Quarterly Journal of Economics, 127(4), 16631705.Google Scholar
Bloom, N., Eifert, B., Mahajan, A., McKenzie, D., and Roberts, J. (2013). Does management matter? Evidence from India. Quarterly Journal of Economics, 128(1), 151.Google Scholar
Bloom, N., Lemos, R., Van Reenen, J., Sadun, R., and Scur, S. (2014). The new empirical economics of management. Journal of the European Economic Association, 12(4), 835876.Google Scholar
Bogetoft, P. (2005). An information economic rationale for cooperatives. European Review of Agricultural Economics, 32(2), 191217.Google Scholar
Bonin, J. P., Jones, D. C., and Putterman, L. (1993). Theoretical and empirical studies of producer cooperatives: will ever the twain meet? Journal of Economic Literature, 31(3), 12901320.Google Scholar
Bonus, H. (1986). The cooperative association as a business enterprise: A study in the economics of transactions. Journal of Institutional and Theoretical Economics, 142(2), 310339.Google Scholar
Borgen, S. O. (2004). Rethinking incentive problems in cooperative organizations. Journal of Socio-Economics, 33(4), 383393.Google Scholar
Burdín, G. (2014). Are worker-managed firms more likely to fail than conventional enterprises? Evidence from Uruguay. Industrial & Labor Relations Review, 67(1), 202238.Google Scholar
Cadot, J. (2015). Agency costs of vertical integration - The case of family firms, investor-owned firms and cooperatives in the French wine industry. Agricultural Economics, 46(2), 187194.Google Scholar
Cakir, M., and Balagtas, J. V. (2012). Estimating market power of U.S. dairy cooperatives in the fluid milk market. American Journal of Agricultural Economics, 94(3), 647658.Google Scholar
Cazzuffi, C., and Moradi, A. (2012). Membership size and cooperative performance: Evidence from Ghanaian cocoa producers’ societies, 1930–36. Economic History of Developing Regions, 27(1), 6792.Google Scholar
Cook, M. L. (1995). The future of US agricultural cooperatives: A neo-institutional approach. American Journal of Agricultural Economics, 77(5), 11531159.Google Scholar
Couderc, J.-P., and Marchini, A. (2011). Governance, commercial strategies and performances of wine cooperatives. International Journal of Wine Business Research, 23(3), 235257.Google Scholar
Frick, B. (2004). Does ownership matter? Empirical evidence from the German wine industry. Kyklos, 57(3), 357386.Google Scholar
Frick, B., and Simmons, R. (2013). The impact of individual and collective reputation on wine prices: Empirical evidence from the Mosel Valley. Journal of Business Economics, 83(2), 101119.Google Scholar
Fulton, M. (1995). The future of Canadian agricultural cooperatives: A property rights approach. American Journal of Agricultural Economics, 77(5), 11441152.Google Scholar
Fulton, M., and Giannakas, K. (2001). Organizational commitment in a mixed oligopoly: Agricultural cooperatives and investor-owned firms. American Journal of Agricultural Economics, 83(5), 12581265.Google Scholar
Furubotn, E. G. (1976). The long-run analysis of the labor-managed firm: An alternative interpretation. American Economic Review, 66(1), 104123.Google Scholar
Gentzoglanis, A. (1997). Economic and financial performance of cooperatives and investor-owned firms: An empirical study. In Nilsson, J. and van Dijk, G. (eds.), Strategies and Structures in the Agro-food Industries, 171182. Assen, The Netherlands: Van Gorcum.Google Scholar
Hanf, J. H., and Schweickert, E. (2007). Changes in the wine chain - Managerial challenges and threats for German wine co-ops. AAWE Working Paper (7), American Association of Wine Economists, New York University. Available at https://ageconsearch.umn.edu/record/37315/files/AAWE_WP07.pdf.Google Scholar
Hanf, J. H., and Schweickert, E. (2014). Cooperatives in the balance between retail and member interests: The challenges of the German cooperative sector. Journal of Wine Research, 25(1), 3244.Google Scholar
Hansmann, H. (1988). Ownership of the firm. Journal of Law, Economics, and Organization, 4(2), 267304.Google Scholar
Hansmann, H. (1996). The Ownership of Enterprise. Cambridge, MA: The Belknap Press of Harvard University Press.Google Scholar
Hansmann, H. (1999). Cooperative firms in theory and practice. Finnish Journal of Business Economics, 4, 387403.Google Scholar
Hardle, W., and Mammen, E. (1993). Comparing nonparametric versus parametric regression fits. Annals of Statistics, 21(4), 19261947.Google Scholar
Hart, O. (1996). The governance of exchanges: Members’ cooperatives versus outside ownership. Oxford Review of Economic Policy, 12(4), 5369.Google Scholar
Holmstrøm, B. R., and Tirole, J. (1989). The theory of the firm. In Schmalensee, R. and Willig, R. (eds.), Handbook of Industrial Organization, 1st ed., 61133. Amsterdam: Elsevier.Google Scholar
Jensen, M. C., and Meckling, W. H. (1979). Rights and production functions: An application to labor-managed firms and codetermination. Journal of Business, 52(4), 469506.Google Scholar
Karami, E., and Rezaei-Moghaddam, K. (2005). Modeling determinants of agricultural production cooperatives’ performance in Iran. Agricultural Economics, 33(3), 305314.Google Scholar
Karantininis, K., and Zago, A. (2001). Endogenous membership in mixed duopsonies. American Journal of Agricultural Economics, 83(5), 12661272.Google Scholar
Katz, J. P., and Boland, M. A. (2002). One for all and all for one? A new generation of co-operatives emerges. Long Range Planning, 35(1), 7389.Google Scholar
Kremer, M. (1997). Why are worker cooperatives so rare? NBER Working Paper No. 6118. National Bureau of Economic Research, Cambridge, MA. Available at http://www.nber.org/papers/w6118.Google Scholar
Lind, J. T., and Mehlum, H. (2010). With or without U? The appropriate test for a U-shaped relationship. Oxford Bulletin of Economics and Statistics, 72(1), 109118.Google Scholar
Maietta, O. W., and Sena, V. (2008). Is competition really bad news for cooperatives? Some empirical evidence for Italian producers’ cooperatives. Journal of Productivity Analysis, 29(3), 221233.Google Scholar
Ménard, C. (2004). The economics of hybrid organizations. Journal of Institutional and Theoretical Economics, 160(3), 345376.Google Scholar
Mikami, K. (2003). Market power and the form of enterprise: Capitalist firms, worker-owned firms and consumer cooperatives. Journal of Economic Behavior and Organization, 52(4), 533552.Google Scholar
Milgrom, P. R., and Roberts, J. D. (1992). Economics, Organization and Management. Upper Saddle River, NJ: Prentice-Hall, A Pearson Education Company.Google Scholar
Monteiro, N., and Stewart, G. (2015). Scale, scope and survival: A Comparison of cooperative and capitalist modes of production. Review of Industrial Organization, 47(1), 91118.Google Scholar
Nilsson, J. (2001). Organisational principles for co-operative firms. Scandinavian Journal of Management, 17(3), 329356.Google Scholar
Novkovic, S. (2008). Defining the co-operative difference. Journal of Socio-Economics, 37(6), 21682177.Google Scholar
Parliament, C., Lerman, Z., and Fulton, J. R. (1990). Performance of cooperatives and investor-owned firms in the dairy industry. Journal of Agricultural Cooperation, 5, 116.Google Scholar
Pennerstorfer, D., and Weiss, C. R. (2012). Product quality in the agri-food chain: Do cooperatives offer high-quality wine? European Review of Agricultural Economics, 40(1), 143162.Google Scholar
Phillips, R. (1953). Economic nature of the cooperative association. American Journal of Agricultural Economics, 35(1), 7487.Google Scholar
Porter, P. K., and Scully, G. W. (1987). Economic efficiency in cooperatives. Journal of Law and Economics, 30(2), 489512.Google Scholar
Richards, T. J., Klein, K. K., and Walburger, A. M. (1998). Principal-agent relationships in agricultural cooperatives: An empirical analysis from rural Alberta. Journal of Cooperatives, 13(1), 2134.Google Scholar
Schamel, G. H. (2014). Wine quality, reputation, denominations: How cooperatives and private wineries compete? BIO Web of Conferences, 3, 3008.Google Scholar
Schamel, G. H. (2015). Can German wine cooperatives compete on quality? BIO Web of Conferences, 5, 16.Google Scholar
Schenk, W. (2007). The role of regional vintners’ cooperatives in the development of rural areas in Germany. Journal of Wine Research, 5(3), 187203.Google Scholar
Schotanus, F., and Telgen, J. (2007). Developing a typology of organisational forms of cooperative purchasing. Journal of Purchasing and Supply Management, 13(1), 5368.Google Scholar
Singh, S., Coelli, T., and Fleming, E. (2001). Performance of dairy plants in the cooperative and private sectors in India. Annals of Public and Cooperative Economics, 72(4), 453479.Google Scholar
Staatz, J. M. (1987). Farmers’ incentives to take collective action via cooperatives: A transaction cost approach. Cooperative Theory: New Approaches, 18, 87107.Google Scholar
The International Co-operative Alliance. (2016). World Co-Operative Monitor, https://www.ica.coop/sites/default/files/publication-files/wcm2016-1165559688.pdf.Google Scholar
The International Co-operative Alliance. (2017). Facts and Figures. Available at http://ica.coop/en/facts-and-figures. Retrieved May 3, 2017.Google Scholar
Valentinow, V. (2007). Why are cooperatives important in agriculture? An organizational economics perspective. Journal of Institutional Economics, 3(1), 5569.Google Scholar
Valette, J., Amadieu, P., and Sentis, P. (2018). Survival in the French Wine Industry: Cooperatives versus Corporations. Journal of Wine Economics, doi: 10.1017/jwe.2017.1Google Scholar
Vitaliano, P. (1983). Cooperative enterprise: An alternative conceptual basis for analyzing a complex institution. American Journal of Agricultural Economics, 65(5), 10781083.Google Scholar
Winfree, J. A., and McCluskey, J. J. (2005). Collective reputation and quality. American Journal of Agricultural Economics, 87(1), 206213.Google Scholar