constitutional selection of collective- choice rules in a.pdfVIP

Journal of Economic Behavior and Organization 17 (1992) 353-362. North-Holland Constitutional selection of collective- choice rules in a cooperative enterprise Pinhas Zusman The Hebrew University of Jerusalem, Jerusalem, Israel University of California, Berkeley, CA 94720, USA Received August 1989, final version received October 1990 Constitutional choice in a cooperative enterprise as embodied in its articles of incorporation is viewed as a problem of selecting an efficient long-term contract. Economizing on transaction costs dictates recourse to collective choice rules, each of which defines a game among cooperative members. Multiple game solutions along with individual members’ ignorance as to their future socio-economic position create uncertainty with respect to members’ payoff at the operating phase. Constitutional selection of collective choice rules and their assignment to collective choice problem areas seeks to minimize the sum of bargaining costs and the members’ risk premia. 1. Introduction A cooperative enterprise is formed by a group of individuals agreeing to act collectively in order to further their private interests. To this end, a special organizational-legal entity - the asociation - is ordinarily formed. The articles of incorporation of the cooperative association constitute the key contract of the organization. It is a long-term contract involving numerous parties and stipulating the range of joint actions to be undertaken by the association, the terms of membership,