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

Abstract

Property rights theory predicts that private firms whose ownership shares am not tradable will not be managed efficiently. This paper tests that theory by comparing the costs of rural electric cooperatives (RECs) and investor-owned electric utilities (lOUs). Separate translog cost functions are estimated for the REGs and the IOUs. The estimated costs of producing several three-product output bundles are then compared across ownership form under the assumption that all firms face identical input prices. The empirical results suggest that the cooperative sector of the electric power industry produces its output in a much less efficient manner than does the investor-owned sector.

Imposing cooperation: the impact of institutions on the efficiency of cooperatives in the Philippines

“…In addition, the cooperative system increases the individual costs of oversight, because of the absence of a secondary market to sell the company shares, which makes it relatively more costly for each individual owner to assess the performance of management (Berry, 1994). This ownership structure also minimizes any incentive for the individual principal to monitor the firm's performance as her returns to monitoring are primarily based on a potential difference in the present value of the costs of the goods and services she purchases from the firm in perpetuity, a value that is difficult to calculate or monetize ex ante.…”

“…This, coupled with the weak governance system surrounding the cooperative, makes these firms more prone to serve the interests of the entrenched principals. As a consequence of these magnified principal-principal issues, numerous studies have demonstrated that cooperative companies tend to become less efficient than their investor-owned counterparts in developed countries (Berry, 1994;Verbrugge and Jahera, 1981), a pattern that is likely to be manifest to a worse degree in developing countries: H1. The cooperative firm will have a lower level of firm efficiency than the investor-owned firm in an emerging market.…”

Price floors and technical inefficiency in India's sugar processing industry

“…Most comparative efficiency studies have found that cooperatives are less efficient than private firms. Porter and Scully (1987), Ferrier and Porter (1991), and Berry (1994) argued that U.S. cooperatives exhibited technical and scale inefficiencies because their stocks were not tradable and individual members had limited incentives to monitor the cooperative's performance. Akridge and Hertel (1992), however, found that cooperatives were no less efficient than investor‐owned firms.…”

Liberalization and Regulation of Telecoms, Electricity, and Gas in the United States

“…Rose and Joskow (1990) privately owned counterparts. Berry (1994) finds that investor owned electric companies are more technically efficient than are rural electric cooperatives, which are owned by their customers. Kwoka (2006) finds that privately owned electricity distribution companies are less technically efficient than their publically owned counterparts unless faced with either competition for large customers or benchmark competition.…”