Agricultural Economics Department


Date of this Version



Cornhusker Economics November 16, 2016


Copyright 2016 University of Nebraska


Cooperative organizations (this includes clubs and professional partnerships) play an important role in the economy, often bridging the gap that exists between the purely public and the purely private in the provision of goods. This has been particularly true in agriculture, where cooperative organizations have emerged to deal primarily with market failures such as oligopsonistic pricing.

The collective nature of cooperative organizations creates two key property rights issues: the free rider problem and the horizon problem. In agricultural cooperatives free rider problems emerge in raising investment funds at formation and later for growth and expansion during operation; in both cases, members prefer to let others make the investment but to nevertheless have access to the benefits of the investment.