Cooperatives vs. Outside Ownership / Oliver Hart, John Moore.

Format:

Book

Author/Creator:

Hart, Oliver.

Contributor:

National Bureau of Economic Research.

Moore, John.

Series:

Working Paper Series (National Bureau of Economic Research) no. w6421.

NBER working paper series no. w6421

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1998.

Summary:

We are concerned with the design of a constitution for a firm -- an ex ante contract which assigns residual rights of control (and possibly residual income rights) without reference to the issue to be decided. We focus attention on two polar constitutions: nonprofit cooperatives and outside ownership. In the former, ownership is shared among a group of consumers on a one member, one vote basis. In the latter, all control rights and rights to residual income are allocated to an outsider. Ex post, agents are assumed to have asymmetric information, which rules out recontracting. We have two main results. First, in the case of perfect competition, an outside owner achieves the first-best; a cooperative typically does not because the rent from any cost advantage relative to the market is used to shield members from competitive pressure, and the median voter's preferences may not reflect average preferences. Second, in the case where the members of a cooperative have common preference orderings they unanimously vote for the first-best; an outside owner typically makes inefficient decisions, tailored to the marginal rather than to the average customer.

Notes:

Print version record

February 1998.