Hostname: page-component-78c5997874-mlc7c Total loading time: 0 Render date: 2024-11-10T13:26:31.816Z Has data issue: false hasContentIssue false
  • English
  • Français

Organizational Form and Payoff Imbalances in an Aggrievement Model: Cooperatives versus Privately Owned Wineries

Published online by Cambridge University Press:  08 October 2018

Francisco J. Santos-Arteaga  and
Günter Schamel
Francisco J. Santos-Arteaga
Affiliation:
Free University of Bozen-Bolzano, Faculty of Economics and Management, Universitätsplatz 1, I-39100 Bozen-Bolzano; e-mail: FSantosArteaga@unibz.it.
Günter Schamel
Affiliation:
Free University of Bozen-Bolzano, Faculty of Economics and Management, Universitätsplatz 1, I-39100 Bozen-Bolzano; e-mail: guenter.schamel@unibz.it.
Get access Rights & Permissions [Opens in a new window]

Abstract

We build on Hart and Holmstrom (2010) to analyze the strategic choice of organizational form among wine producers. They claim that a firm's organizational form, when agreed upon competitively, conditions the sense of entitlement of the involved parties. The sense of entitlement determines their feeling of grievance for the outcome of the contract and, if so, their shading efforts by partially withholding consummate performance, creating deadweight losses. We consider two main organizational forms: non-integration, where growers interact in the winemaking process and can highlight the quality of their individual contributions, and integration, where individual contributions to the process may not be explicitly acknowledged and the winemaker cannot exert quality control over the production chain. We present a formal coordination model that illustrates how cooperatives and private firms can coexist within a market. Furthermore, given the reasonable parameter constraints, it illustrates how an integrated cooperative can obtain a higher social surplus than a non-integrated private firm. (JEL Classifications: C72, L22, L66)

Keywords

cooperativescoordination gamepayoff imbalancesshading wineries
Type
Guest Editor Günter Schamel: Symposium “Organization and Performance of Cooperative Firms in the Wine Sector”
Information
Journal of Wine Economics , Volume 13 , Issue 3 , August 2018 , pp. 263 - 281
Copyright
Copyright © American Association of Wine Economists 2018 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We would like to thank, without implicating, an anonymous reviewer for valuable comments on an early version of this paper. The paper has also benefited from comments of participants at the International AAWE Workshop “Economics of Organization and Integration in the Wine Sector” held in Bozen-Bolzano, June 26–27, 2017. Moreover, we would like to thank the Free University of Bozen-Bolzano for supporting the project WW2032 “Product Quality and Market Organization (ProMo)” to undertake this research.

References

Bartling, B., and von Siemens, F.A. (2010). The intensity of incentives in firms and markets: Moral hazard with envious agents. Labour Economics, 17(3), 598–607.Google Scholar
Blinder, A. S., and Choi, D. H. (1990). A shred of evidence on theories of wage stickiness. Quarterly Journal of Economics, 105(4), 1003–1015.Google Scholar
Bocquého, G., Jacquet, F., and Reynaud, A. (2014). Expected utility or prospect theory maximisers? Assessing farmers’ risk behaviour from field-experiment data. European Review of Agricultural Economics, 41(1), 135–172.Google Scholar
Bontems, P., and Fulton, M. (2009). Organizational structure, redistribution and the endogeneity of cost: Cooperatives, investor-owned firms and the cost of procurement. Journal of Economic Behavior & Organization, 72(1), 322–343.Google Scholar
Borgen, S. O. (2004). Rethinking incentive problems in cooperative organizations. Journal of Socio-Economics, 33(4), 383–393.Google Scholar
Cadot, J. (2015). Agency costs of vertical integration—the case of family firms, investor-owned firms and cooperatives in the French wine industry. Agricultural Economics, 46(2), 187–194.Google Scholar
Camerer, C. F. (2003). Behavioral Game Theory. Experiments in Strategic Interaction. Princeton University Press.Google Scholar
Cohn, A., Fehr, E., Herrmann, B., and Schneider, F. (2012). Social comparison and effort provision: Evidence from a field experiment. Institute for the Study of Labor, IZA Discussion Paper No. 5550, January. Available from https://www.econ.uzh.ch/dam/jcr:ffffffff-9758-127f-0000-00004d2fa777/SocialComparisonEffortProvision.pdf.Google Scholar
Cook, M. (1995). The future of US agricultural cooperatives: A neo-institutional approach. American Journal of Agricultural Economics, 77(5), 1153–1159.Google Scholar
Declerck, F., and Viviani, J. L. (2012). Solvency and performance of French wineries in times of declining sales: Co-operatives and corporations. International Journal on Food System Dynamics, 3(2), 106–122.Google Scholar
Ewert, J., Hanf, J. H., and Schweickert, E. (2015). Strategic challenges facing South African wine co-operatives: Upgrading or bulk production? Journal of Wine Research, 26(4), 287–303.Google Scholar
Fares, M., and Orozco, L. (2014). Tournament mechanism in wine-grape contracts: Evidence from a French wine cooperative. Journal of Wine Economics, 9(3), 320–345.Google Scholar
Faulkender, M. W., and Yang, J. (2010). Inside the black box: The role and composition of compensation peer groups. Journal of Financial Economics, 96(2), 257–270.Google Scholar
Fehr, E., Hart, O., and Zehnder, C. (2011). Contracts as reference points-experimental evidence. American Economic Review, 101(2), 493–525.Google Scholar
Fehr, E., Hart, O., and Zehnder, C. (2014). How do informal agreements and revision shape contractual reference points? Journal of the European Economic Association, 13(1), 1–28.Google Scholar
Festinger, L. (1954). A theory of social comparison processes. Human Relations, 7(2), 117–140.Google Scholar
Frick, B. (2017). Some cooperatives produce great wines, but the majority does not, complementary institutional mechanisms to improve the performance of an indispensable organizational form. Journal of Wine Economics, 12(4), 386–394.Google Scholar
Gino, F., and Pierce, L. (2010). Robin Hood under the hood: Wealth-based discrimination in illicit customer help. Organization Science, 21(6), 1176–1194.Google Scholar
Hansmann, H. (1996). The Ownership of Enterprise. Cambridge, MA/London: The Belknap Press of Harvard University Press.Google Scholar
Hart, O., and Holmstrom, B. (2010). A theory of firm scope. Quarterly Journal of Economics, 125(2), 483–513.Google Scholar
Hart, O., and Moore, J. (2008). Contracts as reference points. Quarterly Journal of Economics, 123(1), 1–48.Google Scholar
Hendrikse, G. W. J. (1998). Screening, competition and the choice of the cooperative as an organisational form. Journal of Agricultural Economics, 49(2), 202–217.Google Scholar
Hendrikse, G. W. J. (2007). On the co-existence of spot and contract markets: The delivery requirement as contract externality. European Review of Agricultural Economics, 34(2), 257–282.Google Scholar
Hendrikse, G. W. J., and Veerman, G. P. (2001). Marketing co-operatives: An incomplete contracting perspective. Journal of Agricultural Economics, 52(1), 53–64.Google Scholar
Herbst, P., and Prüfer, J. (2016). Firms, nonprofits, and cooperatives: A theory of organizational choice. Annals of Public and Cooperative Economics, 87(3), 325–343.Google Scholar
Holmstrom, B., and Roberts, J. (1998). The boundaries of the firm revisited. Journal of Economic Perspectives, 12(4), 73–94.Google Scholar
Katz, J. P., and Boland, M. A. (2002). One for all and all for one? A new generation of co-operatives emerges. Long Range Planning, 35(1), 73–89.Google Scholar
Larkin, I., Pierce, L., and Gino, F. (2012). The psychological costs of pay-for-performance: Implications for the strategic compensation of employees. Strategic Management Journal, 33(10), 1194–1214.Google Scholar
Nickerson, J. A., and Zenger, T. R. (2008). Envy, comparison costs, and the economic theory of the firm. Strategic Management Journal, 29(13), 1429–1449.Google Scholar
Pennerstorfer, D., and Weiss, C.R. (2013). Product quality in the agri-food chain: Do cooperatives offer high-quality wine? European Review of Agricultural Economics, 40(1), 143–162.Google Scholar
Schamel, G. (2015). Can German wine cooperatives compete on quality? BIO Web of Conferences 5: 03003. Available at https://www.bio-conferences.org/articles/bioconf/pdf/2015/02/bioconf_oiv2015_03003.pdf.Google Scholar
Schamel, G., and Santos Arteaga, F. J. (2015). An empirical analysis of product quality and organizational form. In Windsperger, J., Cliquet, G., Hendrikse, G., and Ehrmann, T. (eds.), Interfirm Networks - Cooperatives, Franchising and Strategic Alliances, 191–207. Heidelberg and New York: Springer.Google Scholar
Sexton, R. J., and Lavoie, N. (2001). Food processing and distribution: An industrial organization approach. In Gardner, B. and Rausser, G. (eds.), Handbook of Agricultural Economics, 863–932. North Holland: Elsevier.Google Scholar
Valette, J., Amadieu, P., and Sentis, P. (2018). Cooperatives versus corporations: Survival in the French wine industry. Journal of Wine Economics, 13(3).Google Scholar