Lectures 1 -3 Flashcards
Which provinces have the highest concentrations of coops per capita?
QC (2,598 coops for 6m people)
SK (466 coops for 1m people)
What is the definition of a coop?
Cooperatives are people-centred enterprises jointly owned and democratically controlled by and for their members to realize their common economic, social and cultural needs and aspirations.
Are coops that don’t provide direct economic benefits still of economic benefit?
Yes - they still provide utility.
What are the first four principals of a coop?
- Voluntary and Open membership
- Democratic member control (one member one vote)
- Member economic participation
- Autonomy and independence
What are the last three principals of coops?
- Education, training, and information
- Cooperation among cooperatives
- Concern for community
What are some noticeable contrasts between the makeup of the coop landscape in 1995 vs 2015?
- Most of the grain/ wheat pools are gone (and their $ too).
- Wider breadth of industries in 2015
What’s the difference in objectives between a coop and an IOF?
Coop: maximize profit & consumer surplus
IOF: maximize profit
What’s the difference in distribution of benefits between a coop and an IOF?
Coop: members - patronage - based on use
IOF: shareholders - based on number of shares held
What’s the difference between coop and IOF financing?
Coop:
a) member retained equity
- does need to be paid back
- is considered a liability by banks
b) Loans
- hard to get, member retained equity decreases loan amount
IOF:
a) shareholder equity
- does not ever need to be paid back
- not considered a liability by banks
b) loans
- easier to get, shareholder equity is used as collateral
What’s the difference between coops and IOFs when it comes to management?
Coops: board of directors is from members who are often quite green
IOFs: Well connected, business educated and experienced.
What’s the pricing strategy difference between IOFs and Coops?
Coop: sells at MC = D b/c goal is to maximize member welfare
IOF: sells at MR = MC b/c goal is to maximize profit
What’s the difference between manager incentives in IOFs vs Coops?
Coop: managers can’t be members, no shares to provide incentives
IOF: use shares to incentivize performance
What are the five life stages of a coop?
- Initiation
- Will it survive?
- Some success in ameliorating market failure
- What to do? (property rights problems)
- Decision: exit, shift, or continue
What are the five issues at stage 3 of a coop life cycle caused by?
Ill defined property rights
What are the five possible issues encountered in stage three of a coop life cycle?
a) Free riders
b) Horizon problem
c) Portfolio problem
d) Control problem
e) Influence cost problems
What is the free-rider problem from stage 3 of a coop life cycle?
- some members participate more than others
- original members generally have more money tied up in member-retained earnings
- non-members benefitting from the co-op without participating in it.
What is the horizon problem from stage 3 of a coop life cycle?
- member retained earnings can’t be traded if a member wants to exit
- members will want to exit at different times so the length of time they’re happy to go before their earnings are paid out varies widely
- this affects the length of time that is acceptable to members for an investment to pay off, and can prevent the coop from making solid long-term investments
- well structured coops have mandatory payout on death or retirement
- new generation coops use investment shares that can be traded
What is the portfolio problem from stage three of the coop life cycle?
Members find different levels of risk acceptable in their investment portfolio. Risk averse members pressure coop not to take on projects that could net a lot of profit.
What is the control problem from stage three of a coop life cycle?
- Principal-agent issues: No shares to incentivize managers, and managers not allowed to be members so they aren’t incentivized that way either.
- No external control from equity markets.
- Member board of directors not business savvy.
What is the influence-cost problem from stage three of a coop life cycle?
When coop is involved in a range of activities, the interests of the members can clash, and as such their influences can be in opposition.
Do coops pay taxes on earnings?
Non-member earnings - yes
Member earnings - no because that would be double taxation
Retained member earnings - pay withholding tax
What’s the definition of a market failure?
An inefficient distribution of goods and services in the free market.
What are the four types of market failures?
Asymmetric information
Concentrated market power
Public goods
Externalities
Why might the market fail to produce a good or service?
- transaction costs
- protecting existing market relationships
- government policy
What are the four types of coops?
Worker
Consumer
Producer
Housing
What are the four general coop structures?
- Federated
- Multi-stakeholder
- New Generation
- Traditional
What do non-profit coops do with their profits?
They all get rolled back into operations.
What can coops achieve in a perfectly competitive market?
They can give up some of their producer surplus to members.
What is area C?
Cost of production
Which area(s) represent consumer expenditure?
B + C (P * Q)
Which areas does a coop vs an IOF want to maximize?
Coop: A & B
IOF: B
What are the areas of Consumer Surplus under a monopolist IOF? Single-firm co-op?
IOF: CS = a + b
Coop: CS = a + b + c + d + j
Why are coops more efficient than monopolies in a single firm market?
No dead weight loss with coop b/c operate where demand = supply.
In a single-firm market, would an IOF or a coop produce a higher quantity? Same quantity?
IOF: Q monop - low
Coop: Q comp - higher
Would a coop ever produce and price the same way as a monopoly? What would happen?
When coops hire managers only trained in business and not coops, they often do, and this affects member welfare because prices are high, quantity is low, and there’s a dead weight loss.
