Lectures 1 -3

Question 1

Which provinces have the highest concentrations of coops per capita?

Answer 1

QC (2,598 coops for 6m people)
SK (466 coops for 1m people)

Question 2

What is the definition of a coop?

Answer 2

Cooperatives are people-centred enterprises jointly owned and democratically controlled by and for their members to realize their common economic, social and cultural needs and aspirations.

Question 3

Are coops that don’t provide direct economic benefits still of economic benefit?

Answer 3

Yes - they still provide utility.

Question 4

What are the first four principals of a coop?

Answer 4

1. Voluntary and Open membership
2. Democratic member control (one member one vote)
3. Member economic participation
4. Autonomy and independence

Question 5

What are the last three principals of coops?

Answer 5

5. Education, training, and information
6. Cooperation among cooperatives
7. Concern for community

Question 6

What are some noticeable contrasts between the makeup of the coop landscape in 1995 vs 2015?

Answer 6

• Most of the grain/ wheat pools are gone (and their $ too).
• Wider breadth of industries in 2015

Question 7

What’s the difference in objectives between a coop and an IOF?

Answer 7

Coop: maximize profit & consumer surplus
IOF: maximize profit

Question 8

What’s the difference in distribution of benefits between a coop and an IOF?

Answer 8

Coop: members - patronage - based on use
IOF: shareholders - based on number of shares held

Question 9

What’s the difference between coop and IOF financing?

Answer 9

Coop:
a) member retained equity
- does need to be paid back
- is considered a liability by banks
b) Loans
- hard to get, member retained equity decreases loan amount

IOF:
a) shareholder equity
- does not ever need to be paid back
- not considered a liability by banks
b) loans
- easier to get, shareholder equity is used as collateral

Question 10

What’s the difference between coops and IOFs when it comes to management?

Answer 10

Coops: board of directors is from members who are often quite green
IOFs: Well connected, business educated and experienced.

Question 11

What’s the pricing strategy difference between IOFs and Coops?

Answer 11

Coop: sells at MC = D b/c goal is to maximize member welfare
IOF: sells at MR = MC b/c goal is to maximize profit

Question 12

What’s the difference between manager incentives in IOFs vs Coops?

Answer 12

Coop: managers can’t be members, no shares to provide incentives
IOF: use shares to incentivize performance

Question 13

What are the five life stages of a coop?

Answer 13

1. Initiation
2. Will it survive?
3. Some success in ameliorating market failure
4. What to do? (property rights problems)
5. Decision: exit, shift, or continue

Question 14

What are the five issues at stage 3 of a coop life cycle caused by?

Answer 14

Ill defined property rights

Question 15

What are the five possible issues encountered in stage three of a coop life cycle?

Answer 15

a) Free riders
b) Horizon problem
c) Portfolio problem
d) Control problem
e) Influence cost problems

Question 16

What is the free-rider problem from stage 3 of a coop life cycle?

Answer 16

• some members participate more than others
• original members generally have more money tied up in member-retained earnings
• non-members benefitting from the co-op without participating in it.

Question 17

What is the horizon problem from stage 3 of a coop life cycle?

Answer 17

• member retained earnings can’t be traded if a member wants to exit
• members will want to exit at different times so the length of time they’re happy to go before their earnings are paid out varies widely
• this affects the length of time that is acceptable to members for an investment to pay off, and can prevent the coop from making solid long-term investments
• well structured coops have mandatory payout on death or retirement
• new generation coops use investment shares that can be traded

Question 18

What is the portfolio problem from stage three of the coop life cycle?

Answer 18

Members find different levels of risk acceptable in their investment portfolio. Risk averse members pressure coop not to take on projects that could net a lot of profit.

Question 19

What is the control problem from stage three of a coop life cycle?

Answer 19

• Principal-agent issues: No shares to incentivize managers, and managers not allowed to be members so they aren’t incentivized that way either.
• No external control from equity markets.
• Member board of directors not business savvy.

Question 20

What is the influence-cost problem from stage three of a coop life cycle?

Answer 20

When coop is involved in a range of activities, the interests of the members can clash, and as such their influences can be in opposition.

Question 21

Do coops pay taxes on earnings?

Answer 21

Non-member earnings - yes

Member earnings - no because that would be double taxation

Retained member earnings - pay withholding tax

Question 22

What’s the definition of a market failure?

Answer 22

An inefficient distribution of goods and services in the free market.

Question 23

What are the four types of market failures?

Answer 23

Asymmetric information
Concentrated market power
Public goods
Externalities

Question 24

Why might the market fail to produce a good or service?

Answer 24

• transaction costs
• protecting existing market relationships
• government policy

Question 25

What are the four types of coops?

Answer 25

Worker
Consumer
Producer
Housing

Question 26

What are the four general coop structures?

Answer 26

• Federated
• Multi-stakeholder
• New Generation
• Traditional

Question 27

What do non-profit coops do with their profits?

Answer 27

They all get rolled back into operations.

Question 28

What can coops achieve in a perfectly competitive market?

Answer 28

They can give up some of their producer surplus to members.

Question 29

What is area C?

Answer 29

Cost of production

Question 30

Which area(s) represent consumer expenditure?

Answer 30

B + C (P * Q)

Question 31

Which areas does a coop vs an IOF want to maximize?

Answer 31

Coop: A & B
IOF: B

Question 32

What are the areas of Consumer Surplus under a monopolist IOF? Single-firm co-op?

Answer 32

IOF: CS = a + b
Coop: CS = a + b + c + d + j

Question 33

Why are coops more efficient than monopolies in a single firm market?

Answer 33

No dead weight loss with coop b/c operate where demand = supply.

Question 34

In a single-firm market, would an IOF or a coop produce a higher quantity? Same quantity?

Answer 34

IOF: Q monop - low
Coop: Q comp - higher

Question 35

Would a coop ever produce and price the same way as a monopoly? What would happen?

Answer 35

When coops hire managers only trained in business and not coops, they often do, and this affects member welfare because prices are high, quantity is low, and there’s a dead weight loss.