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88 Tul. L. Rev. 899 (2013-2014)

handle is hein.journals/tulr88 and id is 963 raw text is: The Puzzling Lack of Cooperatives Peter Molk* Some ofthe most ecognizable companies, icludng Land O'Lakes, REZ the Associated Pass, Ace Hardware, and State Farm nsurance, arm organzedas coopemtives-firms owned by their suppliers, workers, or customers. Yet aside from isolated arras of the economy cooperatives constitute only a small portion of Amencan enterpnse which is otherwise dominated by investor-owned inms Conventional wisdom assumes that irms either start as cooperatives or convert to cooperatives when cooperatives offer the highest ongoing benefits to owners, and it explains the lack of cooperatives by suggesting that cooperatives usually do not maxinie ongoing benefits. This Article looks at entpreneus' and brokers' actions when siarting or converting finms. It fmds that the conventional assumption is oaften violated Starting a cooperative is similar to supplying a publc good andjust as unsubsidized public goods are underprvided so too are unsubsidzed cooperative starts Additionaly a lack of viable bokerng institutions prevents most existing firms from converting to cooperatives even when cooperatives pronise the hghest ongoing benefits These findgs explain cooperatives'lowmarket share and several empircal observations that are iconsistent with the conventional wisdom. The results suggest social welfare could be improved if cooperatives were subsidzed through favorable tax tratmen4 grants, or regulatory intervention like ABA rules requirng law frms to be owned by lawyers. They also question the shareholder primacy model of corporate governance The Article closes by briefly considerng the Affordable Care Actk current $2 billion subsiation of health insurance cooperatives I. INTRODUCTION. ..................................900 II. PRINCIPLES OF OWNERSHIP AND THE EVOLUTIONARY THEORY .......................... .............905 III. COOPERATIVES ............................. .....910 A. Cooperative Fundamentals .......... ........910 B. Cooperative Benefits.................................912 1. Producer Cooperatives.. ............................913 2. Worker Cooperatives ............. . .........917 3. Consumer Cooperatives ........................... 919 4. Drawing It Together: What Matters for Cooperative Ownership .....................922 d * 0 2014 Peter Molk. Assistant Professor, Willamette University College of Law. Thanks to Dave Anderson, Amitai Aviram, Ian Ayres, John Colombo, Chris Griffin, Henry Hansmann, Paul Heald, Christine Hurt, David Hyman, Jay Kesan, John Morley, Minor Myers, Elizabeth Pollman, George Priest, Arden Rowell, Dan Schwarcz, Paul Stancil, Suja Thomas, Tom Ulen, Andrew Verstein, Melissa Wasserman, Lesley Wexler, Cindy Williams, Verity Winship, Joe Yockey, workshop participants at Michigan State University and Washington University, and participants at the Big Ten Junior Law Faculty, the Midwest Law and Economics, and the National Business Law Scholars Conferences for insightful conversations and comments. 899

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