Explaining cooperative enterprises through knowledge acquisition outcomes

Abstract

This paper develops a model of a cooperative enterprise and compares it to a vertically separated market. In our model of a multi-stage production process, agents can acquire costly knowledge to decrease production costs. Our model shows that the cooperative acquires less non-generalizable knowledge than the market, but more generalizable knowledge if the large member in the cooperative receives a sufficiently large share of the cooperative's profits. Additionally, we derive that the cooperative generates larger aggregate surplus than the market if the influence of generalizable knowledge on production costs is large.