Network Externalities and Cooperative Networks: Stylized Facts and Theory

  • Stephen C. Smith
Chapter
Part of the Studies in Development Economics and Policy book series (SDEP)

Abstract

This chapter argues that cooperatives may benefit from being in a region with other cooperatives, or in a sector in which there are many cooperatives, or within a supply chain (that is, having significant forward or backward linkages) in which cooperatives are common. In other words there are network externalities or complementarities of organizational type, at least when it comes to organizational form. As a result organized networks can serve to internalize some key externalities that might pose significant problems for individual cooperatives operating in isolation. This chapter sets out a theory of the role of cooperative networks, which is then applied in Chapter 8 to a comparative case study of the La Lega and Mondragon networks. The possibility that reaction functions may shift with changes in the available institutions is introduced, and is applied to the presence and activities of cooperative leagues. The theory is broader in its potential application; for example it may shed light on the large differences between the performance of industrial districts in developing countries.

Keywords

Nash Equilibrium Network Externality Industrial District Cooperative Network Coordination Failure 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
This is a preview of subscription content, log in to check access.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Acemoglu, D. (1997) ‘Training and Innovation in an Imperfect Labor Market’, Review of Economic Studies, 64 (July): 445–64.CrossRefGoogle Scholar
  2. Adsera, A. and D. Ray (1998) ‘History and Co-ordination Failure’, Journal of Economic Growth, 3: 267–76.CrossRefGoogle Scholar
  3. Ammirato, P. (1996) La Lega: The Making of a Successful Co-operative Network, Brookfield: Dartmouth, Ashgate.Google Scholar
  4. Banerjee, A. V. and A. Newman (1993) ‘Occupational Choice and the Process of Development’, Journal of Political Economy, 101, 2: 274–98.CrossRefGoogle Scholar
  5. Bartlett, W., J. Cable, S. Estrin, D. Jones and S. C. Smith (1992) ‘Labor-Managed Co-operatives and Private Firms in North-Central Italy: An Empirical Comparison’, Industrial and Labor Relations Review, 46: 103–18.Google Scholar
  6. Bonin, J., D. Jones and L. Putterman (1993) ‘Theoretical and Empirical Research on the Labor Managed Firm: Will the Twain Ever Meet?’, Journal of Economic Literature, 31, 3: 1290–1320.Google Scholar
  7. Conte, M. (1986) ‘Entry of Worker Cooperatives in Capitalist Economies’, Journal of Comparative Economics, 10, 1: 41–7.CrossRefGoogle Scholar
  8. D’Aspremont, C. A., A. Jacquemin, J. J. Gabszewicz and J. Weymark (1983) ‘On the Stability of Collusive Price Leadership’, Canadian Journal of Economics, 16: 17–25.CrossRefGoogle Scholar
  9. Dow, G. K. (1993) ‘Why Capital Hires Labor: A Bargaining Perspective’, American Economic Review, 83, 1: 118–34.Google Scholar
  10. Ellerman, D. (1984) ‘Entrepreneurship in the Mondragon Cooperatives’, Review of Social Economy, 42, 3: 272–94.CrossRefGoogle Scholar
  11. Gachter, S. and E. Fehr (1999) ‘Collective Action as a Social Exchange’, Journal of Economic Behavior and Organization, 39, 4: 341–69.CrossRefGoogle Scholar
  12. Hansmann, H. (1996) The Ownership of Enterprise, Cambridge, MA: The Belknap Press.Google Scholar
  13. Hertzka, T. (1891) Freeland: A Social Anticipation, London: Chatto & Windus.Google Scholar
  14. Hey, J. D. (1981) ‘A Unified Theory of the Behavior of Prof It-Maximizing, LaborManaged and Joint-Stock Firms Operating under Uncertainty’, Economic Journal, 91: 364–74.CrossRefGoogle Scholar
  15. Joshi, S. and S. C. Smith (2002) ‘An Endogenous Group Formation Theory of Cooperative Networks’, WIDER Discussion Paper 2002/87, Helsinki: UNU/WIDER.Google Scholar
  16. Kremer, M. (1993) ‘The 0-Ring Theory of Economic Development’, Quarterly Journal of Economics, 108, 3: 551–75.CrossRefGoogle Scholar
  17. —(1997) ‘Why are Worker Cooperatives So Rare?’, Working Paper 6118, Cambridge, MA: NBER.Google Scholar
  18. Lerman, Z. and P. Claudia (1993) ‘Financing Growth in Agricultural Co-operatives’, Review of Agricultural Economics, 15, 3: 431–41.CrossRefGoogle Scholar
  19. Levine, D. I. (1996) Reinventing the Workplace: How Business and Employees Can Both Win, Washington, DC: Brookings Institution.Google Scholar
  20. Martin, T. (2000) ‘The Impact of Worker Ownership on Firm-Level Performance: A Comparative Study’, PhD dissertation, Yale University.Google Scholar
  21. Meade, J. E. (1972) ‘The Theory of Labour-Managed Firms and of Prof It Sharing’, Economic Journal, 82, 325: 402–28 (supplement).Google Scholar
  22. Miyazaki, H. (1984) ‘On Success and Dissolution of the Labor-Managed Firm in the Capitalist Economy’, Journal of Political Economy, 92, 5: 909–31.CrossRefGoogle Scholar
  23. Morley-Fletcher, E. (1992) ‘Questa “piccola rivoluzione”’, Rivista della Co-operazione, March–April.Google Scholar
  24. Murphy, K. M., A. Shleifer and R. W. Vishny (1989) ‘Industrialization and the Big Push’, Journal of Political Economy, 97, 5: 1003–26.CrossRefGoogle Scholar
  25. Nadvi, K. (1999) ‘Collective Efficiency and Collective Failure: The Response of the Sialkot Surgical Instrument Cluster to Global Quality Pressures’, World Development, 27, 9: 1605–26.CrossRefGoogle Scholar
  26. Nuti, M. (2000) ‘Employee Participation in Enterprise Control and Returns: Patterns, Gaps, and Discontinuities’, in V. Franicevic and M. Uvalic (eds), Equality, Participation, Transition, New York: St Martin’s Press.Google Scholar
  27. Porter, M. (1990) The Competitive Advantage of Nations, New York: Free Press.CrossRefGoogle Scholar
  28. Putnam, R. D. (1994) Making Democracy Work: Civic Traditions in Modern Italy, Princeton, NJ: Princeton University Press.Google Scholar
  29. Ray, D. (1998) Development Economics, Princeton, NJ: Princeton University Press.Google Scholar
  30. Schmitz, H. and K. Nadvi (1999) ‘Special Issue on Clustering and Industrialization’, World Development, 27, 9.Google Scholar
  31. Smith, S. C. (1994) ‘Innovation and Market Strategy in Italian Industrial Co-operatives: Econometric Evidence on Organizational Comparative Advantage’, Journal of Economic Behavior and Organization, 23, 3: 303–21.CrossRefGoogle Scholar
  32. — and M.-H. Ye (1987) ‘The Behavior of Labor-Managed Firms under Uncertainty: Product Diversification, Income Insurance and Layof F Policy’, Annals of Public and Co-operative Economics, 57: 65–82.Google Scholar
  33. Todaro, M. P. and S. C. Smith (2003) Economic Development, 8th edn, Reading, MA: Addison-Wesley.Google Scholar
  34. Vanek, J. (1970) The General Theory of Labor-Managed Market Economies, Ithaca, NY: Cornell University Press.Google Scholar
  35. Waldmann, R. and S. C. Smith (1999) ‘Investment and Supply Effects of IndustryIndexed Bonds: The Labor Managed Firm’, Economic Systems, 23, 3: 245–68.CrossRefGoogle Scholar
  36. Ward, B. (1958) ‘The Firm in Illyria: Market Syndicalism’, American Economic Review, 48, 4: 566–89.Google Scholar
  37. Whyte, W. F. and W. Kathleen (1991) MakingMondragon, 2nd edn, Ithaca, NY: ILR Press.Google Scholar
  38. World Bank (2002) World Development Report2002, New York: Oxford University Press.Google Scholar

Copyright information

© United Nations University 2003

Authors and Affiliations

  • Stephen C. Smith

There are no affiliations available

Personalised recommendations