The Formation of Cooperatives: A Game‐Theoretic Approach with Implications for Cooperative Finance, Decision Making, and Stability

TLDR

Cooperative analysis has traditionally focused on organization structure, but this paper departs from that approach. The study investigates individuals' incentives to form purchasing cooperatives by modeling the process as an n‑person game with the core as the solution concept. The authors examine core existence for single and multiple cooperative configurations and analyze cooperative finance methods in relation to core‑compatible allocation rules. Results reveal how a cooperative's equilibrium output, stability, decision making, financing methods, and membership type are interrelated.

Abstract

Abstract This paper departs from the traditional organization‐oriented approach to cooperative analysis. It exploits cooperation's functional similarity to vertical integration to examine individuals' incentives to form cooperatives. A model of formation of a purchasing cooperative is presented and developed as an n ‐person game with the core as a solution concept. Core existence is examined for both single‐ and multiple‐cooperative configurations, and cooperative finance methods are examined relative to finding core‐compatible allocation rules. The results provide insight into a cooperative's equilibrium output, stability, decision making, financing methods, and choice of open or restricted membership.