<p>The co-operative as an economic and social institution has long been recognized for its contribution to economic development as well as its positive effect on local communities. However, over the last decade or so substantial structural changes in the agricultural sector have undermined some of the most prominent North American co-operatives. In some cases, co-ops asked for bankruptcy protection, others ceased operations while some were transformed to for-profit firms. The present study offers three essays that explore the challenges that co-operatives are facing in terms of their relationship with their members in local markets, the decision-making process of their leaders and the co-ops' role in the modern economy.</p> <p>These first two essays are linked by the fact that they both develop models that are about cognitions. Examining cognition offers some new insights to understanding the process behind the decline of agricultural co-ops. In the first essay the model examines consumers' cognitions, while the model in the second essay examines management's cognitions. The essays differ on the agent's ability to change the perceptions that result from those cognitions. Essay One assumes that consumers' perceptions are partially flexible and thus can change over time with some cost; on the other hand, essay Two assumes that beliefs are inflexible due to the high cost of changing them.</p> <p>Essay One examines the relationship between a co-operative and its membership in a local market using an economic psychological approach. More specifically, the essay presents a modified rational-choice model to investigate how cognitive dissonance can influence members' loyalty. The effect of cognitive dissonance is analyzed in a case where a local co-operative operates alongside with an investor-owned firm (IOF) in a market. The model illustrates how cognitive dissonance can give rise to switching costs for those consumers who wish to switch to the IOF. Analytical results demonstrate the effect of these switching costs on equilibrium market shares and discuss how a drop in the dissonance cost because of managerial decisions by the co-op can result in dramatic drops in its market share.</p> <p>Essay Two illustrates how management's mental frame can be incorporated into an economic model and develops a theoretical underpinning for the link between a strong mental frame and the financial difficulties that a firm might experience. The case of the Saskatchewan Wheat Pool with its Project Horizon plan is proposed as an example of a situation where the established mental frame gave rise to a belief regarding future member support that had a significant influence on the decision-making process of the co-op's CEO. The analysis includes a game theoretic model of a duopoly between a co-operative and an IOF, where mental framing is explicitly incorporated into the primitives of the model. Analytical results illustrate how the CEO's belief regarding member commitment can influence decision-making and therefore affect the market share and profits of the firm.</p> <p>Essay Three uses non-parametric econometric techniques to examine the stock price effect of a co-op's acquisition by a publicly-traded IOF. The potential for this study emerged as a result of the takeover of Dairyworld, a dairy co-op, by Saputo, a publicly-traded private corporation. The study uses the prediction-error approach to estimate Saputo's returns after the acquisition as a deviation from its expected returns. A non-parametric bootstrap technique simulates Saputo's stock returns and examines its behavior around the acquisition date. The empirical results are consistent with a number of hypotheses, including the pro-competitive role that co-operatives are believed to have in the economy. The essay also includes a comprehensive discussion regarding the greater financial value that co-ops have for IOFs.</p>

<p>The co-operative as an economic and social institution has long been recognized for its contribution to economic development as well as its positive effect on local communities. However, over the last decade or so substantial structural changes in the agricultural sector have undermined some of the most prominent North American co-operatives. In some cases, co-ops asked for bankruptcy protection, others ceased operations while some were transformed to for-profit firms. The present study offers three essays that explore the challenges that co-operatives are facing in terms of their relationship with their members in local markets, the decision-making process of their leaders and the co-ops' role in the modern economy.</p> <p>These first two essays are linked by the fact that they both develop models that are about cognitions. Examining cognition offers some new insights to understanding the process behind the decline of agricultural co-ops. In the first essay the model examines consumers' cognitions, while the model in the second essay examines management's cognitions. The essays differ on the agent's ability to change the perceptions that result from those cognitions. Essay One assumes that consumers' perceptions are partially flexible and thus can change over time with some cost; on the other hand, essay Two assumes that beliefs are inflexible due to the high cost of changing them.</p> <p>Essay One examines the relationship between a co-operative and its membership in a local market using an economic psychological approach. More specifically, the essay presents a modified rational-choice model to investigate how cognitive dissonance can influence members' loyalty. The effect of cognitive dissonance is analyzed in a case where a local co-operative operates alongside with an investor-owned firm (IOF) in a market. The model illustrates how cognitive dissonance can give rise to switching costs for those consumers who wish to switch to the IOF. Analytical results demonstrate the effect of these switching costs on equilibrium market shares and discuss how a drop in the dissonance cost because of managerial decisions by the co-op can result in dramatic drops in its market share.</p> <p>Essay Two illustrates how management's mental frame can be incorporated into an economic model and develops a theoretical underpinning for the link between a strong mental frame and the financial difficulties that a firm might experience. The case of the Saskatchewan Wheat Pool with its Project Horizon plan is proposed as an example of a situation where the established mental frame gave rise to a belief regarding future member support that had a significant influence on the decision-making process of the co-op's CEO. The analysis includes a game theoretic model of a duopoly between a co-operative and an IOF, where mental framing is explicitly incorporated into the primitives of the model. Analytical results illustrate how the CEO's belief regarding member commitment can influence decision-making and therefore affect the market share and profits of the firm.</p> <p>Essay Three uses non-parametric econometric techniques to examine the stock price effect of a co-op's acquisition by a publicly-traded IOF. The potential for this study emerged as a result of the takeover of Dairyworld, a dairy co-op, by Saputo, a publicly-traded private corporation. The study uses the prediction-error approach to estimate Saputo's returns after the acquisition as a deviation from its expected returns. A non-parametric bootstrap technique simulates Saputo's stock returns and examines its behavior around the acquisition date. The empirical results are consistent with a number of hypotheses, including the pro-competitive role that co-operatives are believed to have in the economy. The essay also includes a comprehensive discussion regarding the greater financial value that co-ops have for IOFs.</p>