An Examination of the Effect of Ownership Form on Price Efficiency: Proprietary, Cooperative and Municipal Electric Utilities

Abstract

JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.. Southern Economic Association is collaborating with JSTOR to digitize, preserve and extend access to Southern Economic Journal.An examination of the behavior of a cooperative provides considerable support for this proposition. First, all cooperative patrons are members and vice versa, and voting is on a one person, one vote basis regardless of patronage. Holding external subsidies constant, departure from earning the minimal necessary profits for economic viability results in direct off-setting price increases to patron/members. The cooperative appears to lie somewhere between proprietary and municipal firms in terms of economic efficiency. It is privately owned but presumably lacks the profit maximization motive. While there is no legitimate profit maximization objective, there exists a binding loss avoidance objective since the majority of members have an interest in the long run economic viability of the cooperative.Nichols [20] addressed some of those issues in his study of the savings and loan industry. He noted the difference in objectives between mutual (cooperative) and proprietary associations, pointing out that mutuals may engage in behavior that is consistent with management expense preference behavior rather than profit maximization. Frech [9] examined the effects of property rights on performance of the firm in his study of the insurance industry, concluding that not-forprofit firm were less efficient than proprietary firms.A brief review of the recent literature on property rights and agency theory follows. Subsequent sections describe the data and develop the profit function and input demand equations used in the study. Results of the hypothesis tests are then presented.

Private ownership form and productive efficiency: Electric cooperatives versus investor-owned utilities

“…Released in 1991, this publication provides data from all sectors of the industry: investor-owned, cooperative, and various publicly owned facilities. The third data source is the Rural Electrification Administration 's 1988Statistical Report, Rural Electric Borrowers (REA 1989.…”

“…The views expressed here are the author's and do not necessarily reflect those of the New York State Public Service Commission. 2 Hollas and Stansell (1988) survey the most important work in this area.…”

On the Advantages of a System of Labour-managed Firms

“…Conflicting results are reported in Hollas and Stansell (1988) and Faccioli and Fiorentini (1998). These two authors maintain that cooperatives are outperformed by capital-managed firms and a comparative analysis of capital-versus worker-controlled firms by Estrin points to a negligible productivity differential when headcount is used as a proxy of labour input and a considerable underperformance of cooperatives when the total hours worked by blue collars are used as a measure of labour input (see Estrin, 1991) 8 .…”

An examination of the economic efficiency of class I railroads: A profit function analysis

“…Readers interested in a detailed discussion of this derivation are referred to their article and to Hollas andStansell (1988a, 1988b).…”