Agricultural Economics Department


Date of this Version



Copyright © 2014 by Jeffrey S. Royer

The material contained in this monograph was previously published as “The Neoclassical Theory of Cooperatives” in volume 28 (2014) of the Journal of Cooperatives.


This monograph provides an introduction to the neoclassical theory of agricultural cooperatives. The neoclassical theory of cooperatives has been useful for generating insights into the behavior of cooperatives in various market structures, helping cooperatives develop business strategies consistent with their objectives, and informing public policy decisions concerning cooperatives. This monograph describes the application of neoclassical theory to farm supply and marketing cooperatives within various market structures in both the short and long run. Topics covered include the stability of cooperative price and output solutions, strategies for reducing the cost of producing a farm input sold to members and for raising member raw product prices, open- and restricted-membership policies, and the effects of cooperatives on economic welfare, including their effects on other firms in imperfect markets and a discussion of the competitive yardstick concept. An appendix presents mathematical models of a farm supply firm and a processing firm and compares their price and output solutions to those for the maximization of economic welfare to determine the conditions under which cooperatives and profit-maximizing firms are efficient in an allocative sense.