Producer cooperatives (hereafter, PC) have existed in Western economies since the advent of the factory system. The oldest surviving PCs in the U.K. and Italy are over one hundred years old. By analyzing the theoretical properties of PCs, economists hope to assess whether popularization of the PC form, or transplantation of some of its characteristics into other organizations, would benefit or harm social welfare.
Fundamental to any research on the topic is the following positive question. Why do so few PCs exist in Western market economies? A complete answer requires consideration of three related and more tractable questions. Are there recognizable differences in the way conventional firms (hereafter, CFs) and PCs respond to exogenous changes in the economic environment? Does the internal organization of the PC, in particular, worker participation in decision making and the sharing of value-added, affect worker motivation and productivity? How does the assignment of property rights in PCs affect investment and capital formation compared with that in CFs? In this essay, we review the existing theoretical and empirical literature using these three questions as organizational guides. We return to the fundamental question by considering explanations for the low incidence of PCs and for the recent growth of PCs in Western market economies. Throughout, we restrict our attention to industrial PCs.