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Dr Diogo M. Souza Monteiro (Newcastle University): Deterring free-riding on quality products in cooperatives: Lessons from an experiment

Thursday, 23 March 2017
16:30 to 17:45
Durham University Business School

Cooperatives, particularly the wine cooperatives, are increasingly investing on quality and developing their own collective premium brands.

Moral hazard among cooperative members can result in free-riding on quality product. This empirical analysis investigates the free-riding on quality product in cooperatives. The experimental analysis is based on a game built to represent the specific context of cooperatives, that nests a public good game and a multi-player assurance game. The magnitude of the collective rent depends on the joint contributions of members and is distributed back equally to all group members. Free-riding is imperfectly monitored. The results suggest that to deter free-riding, a cooperative may sub-divide production into a number of smaller divisions where collective rents determined through profit-sharing arrangements can be organized among smaller groups. Moreover, the analysis reveals that cooperation is better in cooperatives where members benefit from financial advantages.

(joint with Olivier Bonroy, Alexis Garapin, and Stephen F. Hamilton)

Organised by the BENC (Behavioural and Experimental Northeast Cluster) seminar series.

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