The new-generation cooperative (NGC) is a significant organizational innovation that has fostered a new wave of farmer cooperative investment in value-added processing facilities. The NGC structure, based on tradable shares that are linked to the right and obligation to deliver specific quantities of raw product to the processing facility, helps overcome the free rider, horizon, portfolio, and control problems that have plagued traditional cooperatives. Over the past several years, however, concerns have begun to emerge about the longrun viability of this cooperative form, as several large NGCs have been taken over by or converted to investor-owned firms (IOFs). This article describes how the NGC's choice of stock trading rules and procedures affects NGC formation and takeover. We consider a perfectly competitive market for NGC stock as well as discriminatory auction and competitive auction stock trading mechanisms. Drawing on results from a dynamic, heterogeneous agent model of the market for NGC stock developed by Holland, we analyze how each of these stock trading mechanisms affects the reversibility of an investment in an NGC and, consequently, the conditions under which the NGC will form or be sold to an IOF.
Bibliographical noteFunding Information:
This research was funded, in part, by a cooperative agreement with Rural Business-Cooperative Service of the United States Department of Agriculture. The views expressed here are the authors’ own views and do not necessarily reflect the views of the funding agency.