Both Market and Hierarchy: Understanding the Hybrid Nature of Cooperatives. Paper prepared for the

Abstract: What is a cooperative? Until the early 1960s much of the theoretical debate focused on whether cooperatives represented a form of vertical integration by farmers, that is, an extension of the member firms, or whether cooperatives could legitimately be analyzed as organizations having scope for decision making independent of their member firms. Subsequent theoretical work has modeled cooperatives based on coalition, nexus of contracts, and property rights perspectives. More recently, the cooperative has been characterized as an intermediate (or hybrid) form of governance. This paper contributes to the economic theory of the cooperative organization by examining it from a comparative economic perspective. Departing from Williamson’s unidimensional continuum of governance structures, the paper adopts the view that governance structures exhibit multiple dimensions – including asset ownership, authority, administrative controls, and incentives – and “true hybrids ” are market-like on some of these dimensions while hierarchy-like on others. I show that cooperatives blend market-like attributes with hierarchy-like mechanisms and thus should be viewed as a true hybrid rather than as an intermediate form. In other words, cooperatives have architectures of their own which are distinct from markets and hierarchies. The paper concludes with a discussion about the usefulness of this approach to our understanding of the economic nature of cooperatives as it informs potential avenues for future research