Effort, Technology and the Efficiency of Agricultural Cooperatives

The inefficiency of cooperative agriculture relative to private farms is often attributed to difficulties in monitoring or poor incentives. We develop a model to show that, in technologies with numerous sequential steps, even small shortfalls in worker effort can result in large output declines. Using data on cooperative and private farms in El Salvador, we find greater shortfalls in efficiency between cooperatives and private farms, as well as among cooperatives, for coffee, a crop requiring numerous steps in its cultivation, than for maize and sugar, which require fewer steps. Thus the undersupply of effort in cooperatives may be less than differences in productivity suggest, and cooperative agriculture is most likely to be successful where production does not involve many sequential steps.