Patronage Refunds, Producer Expectations and Optimal Pricing by Agricultural Cooperatives
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This paper presents a dynamic model of a processing cooperative in which patronage
refunds are taken into consideration by producers in making marketing decisions and by
the cooperative in establishing pricing strategies. An adaptive expectations framework is
used to represent the formation of producer expectations of patronage refunds. The model
suggests that cooperatives can successfully distribute earnings to producers as patronage
refunds while using prices as instruments for achieving and maintaining optimal output
levels. This result challenges conventional ideas about cooperative market behavior and implies that public support for cooperatives should be based on empirical analysis rather
than theoretical arguments alone.