Michael Cook

Question 1

What were the previous theories for co-ops?

Answer 1

• Wave
• Wind-it-up
• Pacemaker
• Mop-up

Question 2

What is the wave theory of coops?

Answer 2

Waves of start-ups followed by waves of failures.

Question 3

What is the Wind-it-up theory of co-ops?

Answer 3

Co-op existence fixes market failure, which renders co-op obsolete.

Question 4

What is the Pacemaker theory of co-ops?

Answer 4

Co-op existence causes market to be competitive, which is why members keep it around.

Question 5

What is the Mop-Up theory of co-ops?

Answer 5

Static and declining markets attract opportunism, so producers and consumers create coops to protect themselves

Question 6

What are the five stages of the co-op life cycle according to Cook?

Answer 6

1. Formation
2. Infancy
3. Correction/amelioration of market failures
4. Decision makers become aware of property rights issues
5. Decision gets made

Question 7

What are the 7 types of co-ops dealt with in the Michael Cook article?

Answer 7

• Farm Credits
• Rural Utilities
  * ^^these two just touched on briefly*
• Nourse I & II
• Sapiro I to III

Question 8

What is a Nourse I co-op?

Answer 8

• local cooperatives (epitomize Nourse theory of cooperation)
• Yardstick to keep IOFs competitive
• Operate where natural monopolies / monopsonies may occur due to economies of scale
• Issues:
  a) Free Rider
  b) Horizon
  c) Influence Cost

Question 9

What is a Nourse II co-op?

Answer 9

• Regional
• Competitive yardstick
• Forward or backward integration
• Often federated or centralized
• Little probability of natural monopolies in these spaces
• Issues: everything except free riders

Question 10

What is a Sapiro I co-op?

Answer 10

• bargaining (address market failures through horizontal integration)
• Sapiro I goals:
  i) Increase margins
  ii) Guarantee a market especially with
  perishables
• Issues: free rider

Question 11

What is a Sapiro II co-op?

Answer 11

• marketing coops: producer vertical integration
  i) Single commodity
  ii) Multiple commodity
• Goals:
  ◊ Increase margins
  ◊ Avoid market power of IOFs
• Issues:
  ◊ Portfolio
  ◊ Control

Question 12

What is a Sapiro III co-op?

Answer 12

Minimal issues from any of the five property right constraint issues

Question 13

What are the five problems co-ops can run into according to Cook?

Answer 13

• Free rider
• Horizon
• Portfolio
• Control
• Influence Cost

Question 14

Explain stage 3 of a co-op life cycle (correction/amelioration of market failures)

Answer 14

• Competitor strategies change
• Which means prices differ little between coop and IOF, so members start to scrutinize coop more
• Coop structure gets more complex
• Conflicts over residual claims and decision control arise

Question 15

What’s the free-rider problem?

Answer 15

• non-members benefiting
• New and old members getting same residual rights = diluted ROI for old members

Question 16

What’s the horizon problem?

Answer 16

• Member’s residual claim is shorter than productive life of the asset that generated that income
• Residual rights not easily transferred
• Members stop contributing to growth opportunities and start eating into retained earnings by putting pressure on coop to pay out earnings.

Question 17

What’s the portfolio problem?

Answer 17

• Member retained earnings = investment portfolio that lacks transferability, liquidity or appreciation.
• Members seek to control risk which limits co-op to low ROI investments (lower risk)

Question 18

What is the control problem?

Answer 18

• Agent-principal
• lack of secondary market info (like TSX / NYSE would provide)

Question 19

What’s the influence cost problem?

Answer 19

• diverse activities lead to conflicts of interest
• severity depends on:
  * existence of a central authority
  * decision procedures
  * degree of conflicts of interest

Question 20

In stage 5 of a co-op life cycle, where a decision must be made, what are the three possible decisions?

Answer 20

Exit
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