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Organizational Form and Payoff Imbalances in an Aggrievement Model: Cooperatives versus Privately Owned Wineries

Published online by Cambridge University Press:  08 October 2018

Francisco J. Santos-Arteaga  and
Günter Schamel
Francisco J. Santos-Arteaga
Affiliation:
Free University of Bozen-Bolzano, Faculty of Economics and Management, Universitätsplatz 1, I-39100 Bozen-Bolzano; e-mail: [email protected].
Günter Schamel
Affiliation:
Free University of Bozen-Bolzano, Faculty of Economics and Management, Universitätsplatz 1, I-39100 Bozen-Bolzano; e-mail: [email protected].
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Abstract

We build on Hart and Holmstrom (2010) to analyze the strategic choice of organizational form among wine producers. They claim that a firm's organizational form, when agreed upon competitively, conditions the sense of entitlement of the involved parties. The sense of entitlement determines their feeling of grievance for the outcome of the contract and, if so, their shading efforts by partially withholding consummate performance, creating deadweight losses. We consider two main organizational forms: non-integration, where growers interact in the winemaking process and can highlight the quality of their individual contributions, and integration, where individual contributions to the process may not be explicitly acknowledged and the winemaker cannot exert quality control over the production chain. We present a formal coordination model that illustrates how cooperatives and private firms can coexist within a market. Furthermore, given the reasonable parameter constraints, it illustrates how an integrated cooperative can obtain a higher social surplus than a non-integrated private firm. (JEL Classifications: C72, L22, L66)

Keywords

cooperativescoordination gamepayoff imbalancesshading wineries
Type
Guest Editor Günter Schamel: Symposium “Organization and Performance of Cooperative Firms in the Wine Sector”
Information
Journal of Wine Economics , Volume 13 , Issue 3 , August 2018 , pp. 263 - 281
Copyright
Copyright © American Association of Wine Economists 2018 

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Footnotes

We would like to thank, without implicating, an anonymous reviewer for valuable comments on an early version of this paper. The paper has also benefited from comments of participants at the International AAWE Workshop “Economics of Organization and Integration in the Wine Sector” held in Bozen-Bolzano, June 26–27, 2017. Moreover, we would like to thank the Free University of Bozen-Bolzano for supporting the project WW2032 “Product Quality and Market Organization (ProMo)” to undertake this research.

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