The Knowledge Economics of Cooperatives
Abstract: This paper compares markets, cooperatives and hierarchies in terms of organizational efficiency. In particular, we analyze the knowledge economics of these three alternative forms of organization. We show that the three alternatives differ with respect to the acquisition of general versus idiosyncratic knowledge and with respect to their effectiveness to solve hold up problems. Markets are a marvel with respect to the aggregation and communication of idiosyncratic knowledge, but cause hold up problems when actors have to make specific investments. Cooperatives and hierarchies, on the other hand, solve hold up problems and effectively economize on the acquisition and use of general knowledge. Moreover, we show that cooperatives dominate markets (hierarchies) in terms of efficiency if the acquisition of general (idiosyncratic) knowledge is important for value creation.
