Date Added: Nov 2009
Considering their practical importance, cooperatives are among the least re-searched forms of organization found in the literature. In this paper, the authors develop a model to compare markets, cooperatives, and hierarchies in terms of organizational efficiency. The authors show that these three alternative forms of business organizations differ with respect to the acquisition of general versus idiosyncratic knowledge and with respect to their effectiveness in solving hold-up problems. Market forms of business organizations are a marvel with respect to the aggregation and use of idiosyncratic knowledge, but they cause hold-up problems in the case of specific investments. Cooperative and hierarchical forms of business organizations, on the other hand, solve hold-up problems and effectively enhance the acquisition and use of general knowledge.