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This article develops a sequential game‐theoretic model of heterogeneous producers to examine the market and welfare effects of cooperative involvement in process innovation activity in the agricultural sector. The analysis examines an open‐membership, input‐supplying cooperative (co‐op) that maximizes member welfare and finances its innovation activity through retained earnings. Analytical results show that the presence of the co‐op can increase the arrival rate of innovations while reducing the price of agricultural inputs. Cooperative involvement in innovation activity can thus be welfare enhancing and socially desirable with its effectiveness being determined by the degree of producer heterogeneity and the size of innovation costs.
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Giannakas et al. (2005) studied this question.
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