We consider cooperative enterprises as a specific form of entrepreneurial action. In this we start from the definition of the enterprise as coordination mechanism of the economic activity, which is geared to the organized production and exchange of good and services. This definition cannot simply be reduced to the profit maximization hypothesis, but represents instead a wider conception of entrepreneurial action including collective action in the pursuit of mutual benefit and social benefit objectives.
We start from the widely acknowledged observation that cooperatives exist to overcome the presence of market failures. In such cases the ownership of enterprise is assigned to the group of patrons that undergoes the highest contractual costs due to asymmetric distribution of information and control power. Market failures represent, in our perspective, only the starting point of analysis, since the ability of cooperatives to become sustainable entrepreneurial ventures and to spread in the economy depends also on their internal working mechanisms and governance, which, by relying on trust and reciprocity, and by generating social capital, can make the cooperative form more effective than other forms. We follow a new explanatory strategy in which we demonstrate the superiority of cooperative enterprises in various instances and because of different reasons, among which we include market and contract failures. To do so, we strive to combine different theoretical streams, mainly the institutionalist, the behavioral and the evolutionary, to achieve new and more general understanding.
We maintain that non-traditional organizational forms such as cooperatives can be able to overcome specific typologies of market failures by giving control over the organization to non-investor stakeholders. This modification of control rights can allow to overcome problems connected with concentration of market power ex ante, contractual power ex post (lock in), asymmetric distribution of information, and internalize relevant external effects that simple contractual relations are not able to deal with. For example, when wage rigidity limits employment stability, worker cooperative can be able to correct negative effects on employment levels by making worker remuneration more flexible.
In other words, we posit that market failures may can be overcome (surely not in all cases) by non-traditional organizational forms thanks to coordination mechanisms different from market exchanges, such as new forms of contractual exchanges. The overcoming of market failures may require different coordination mechanism, such as authority and, or cooperation. For instance, failures in the possibility to write complete contracts in the relations between the firm owners and managers, or between employers and employees requires that such relationships are regulated by authority in investor owned companies, as clearly anticipated in Coase (1937) article. The overcoming of market failures through cooperation may require that one or more than one categoryies of patrons of the organization are involved into control mechanisms and governance. This way, cooperative enterprises are created.
The relevance of co-operation as further coordination mechanism to be added to the more traditional mechanisms of market exchanges and authority is underlined. These three mechanisms are assessed in both cooperatives and investor owned companies. We maintain that cooperative enterprises represent the organizational form in which spontaneous cooperation as coordination mechanism becomes dominant, but not necessarily exclusive.
