Screening, Competition and the Choice of the Cooperative as an Organisational Form

Cooperatives are distinguished from investor‐owned firms by different decision‐making processes. A model is developed in which more cumbersome decision making by cooperatives may be compensated for by improved decision making. Conditions are derived under which cooperatives become efficient organisational forms. It is also shown that circumstances exist in which investor‐owned firms and cooperatives can coexist in equilibrium. Finally, circumstances are identified in which competition results in a prisoners dilemma which comprises investor‐owned firms only. Favourable public policy treatment of cooperatives may prevent this equilibrium outcome from occurring.