The Advantage of Cooperatives under Asymmetric Cost Information

We consider how to organize the processing and marketing of an agricultural product when farming costs are known only by the individual farmers. We show that when marginal costs are un-correlated and the market for final goods is competitive, the socially optimal production levels may be sustained by a cooperative and a cooperative only. We show also that the cooperative form is particularly useful when the uncertainty is large and the net revenue product is small.