Ownership and Loyalty in Agricultural Cooperatives

In this work the authors explore that agency problems cause the lack of loyalty in the federated system of cooperatives. The agents in the federated system are the local managers, who act on behalf of their principals, the local owners (or the local board members who represent the owners). The authors develop a theoretical principal-agent model that explores the loyalty incentives in the federated structure. The authors derive several conditions for loyalty that we test empirically using data collected from federated farm supply and grain marketing cooperatives in 2003. The results show that ownership and loyalty may not always be positively correlated. (33 pages)