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The Horizon Problem Reconsidered

In: Vertical Markets and Cooperative Hierarchies

Author

Listed:
  • Henrik Ballebye Olesen

    (Copenhagen Economics)

Abstract

This paper challenges the general view in the literature that cooperatives underinvest, because some members will exit the cooperative before the full benefits from their investments are harvested (the horizon problem). This paper demonstrates that full equity redemption will solve the horizon problem. The majority of members will, however, bias the exit payment to their own advantage. This will lead to overinvestment. Thus, the main finding in this paper is that if there is a horizon problem, it will lead to overinvestment – not underinvestment.

Suggested Citation

  • Henrik Ballebye Olesen, 2007. "The Horizon Problem Reconsidered," Springer Books, in: Vertical Markets and Cooperative Hierarchies, chapter 0, pages 245-253, Springer.
    • Handle: RePEc:spr:sprchp:978-1-4020-5543-0_14
    DOI: 10.1007/1-4020-5543-0_14
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    Citations

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    Cited by:

    1. Franken, Jason R.V. & Cook, Michael L., 2015. "Investment Constraints in Agricultural Cooperatives," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205427, Agricultural and Applied Economics Association.
    2. Peter Österberg & Jerker Nilsson, 2009. "Members' perception of their participation in the governance of cooperatives: the key to trust and commitment in agricultural cooperatives," Agribusiness, John Wiley & Sons, Ltd., vol. 25(2), pages 181-197.
    3. Royer, Jeffrey S., 2012. "Implications of the Cooperative Organizational Form for Vertical Expansion," Journal of Rural Cooperation, Hebrew University, Center for Agricultural Economic Research, vol. 40(2), pages 1-20.

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