The Silver Lining of Co-operation: Self-defined rules, common resources, motivations, and incentives in co-operative firms

EMES Conferences Selected Papers Series, ECSP-5EMES-42

Co-operative firms are understood, in this paper, as mutual benefit organisations created by self-organised principals to protect the participation rights of their membership with the aim of satisfying its needs. These are directly invested of the responsibility to define and pursue the objectives of their organisation. Co-operatives do not, as a norm, maximise private returns accruing to the investment of financial capital. They are usually controlled on an equal voting-right basis by different typologies of patrons (e.g. producers, workers, consumers) or by a mix of them (multi-stakeholder co-operatives).
Since the organisation is created to pursue objectives other than the ones of investors, private objectives vested in external owners are substituted with mutual-benefit aims. This puts the burden of the fulfilment of economic, financial, and organisational requirements directly on the self-organised principals. However, the co-operative duty to act in the best interest of its members is put under strain when there is no alignment between the aims of co-operation and individual behaviours. To address this issue, this paper explores the institutional elements of co-operatives, focusing on those that regulate individual behaviour and outcomes. Specifically, we relate outcomes with the interplay between specific individual values and motivations on the one hand, and firm governance and objectives on the other, through the mediating role of the incentive structure. We also suggest that effectiveness responds to the ability of self-defined rules to foreclose the risk of opportunism and, in so doing, allow the achievement of the desired outcomes.
Among the different literatures, new institutional, behavioural and evolutionary economics have provided insights on specific aspects of economic choice in mutual benefit organizations, each of these in its own merit but without providing a comprehensive framework.

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