The organizational cost, exclusive resources and the initiator’s control of the rural mutual financial cooperative

ZHU Qianyu1 LUO Xing1 MA Jiujie1

(1.School of Agricultural Economics and Rural Development, Renmin University of China)

【Abstract】This paper, based on theories of the organizational cost and exclusive resources, adopted the game theory and the method of case analysis to analyze and verify the initiator’s control of the RMFC at its beginning. According to its main conclusion, the organizational cost and exclusive resources put in by the initiators played an important role in the initiation and operation of the RMFC, which provided the initiators with a strong bargaining position, significantly heterogeneous to the common members. Without external intervention, the initiators tended to possess the residual claim and residual rights of control of the RMFC. When the RMFC meet external intervention, the initiators could still have control under soft restraints while chose to dissolve the organization or turned to moral persons under hard restraints.

【Keywords】 the rural mutual financial cooperative; the initiator’s control; the organizational cost; exclusive resources;

【DOI】

【Funds】 Supported by the plan to build teams of the entrusted pre-research project of Renmin University of China (14XNQ017)

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(Translated by ZHANG guoqing)

    Footnote

    [1]. (1) Now, China’s mutual financial cooperative adopts the system of initiators for initiation. It requires at least ten initiators in line with the regulations to initiate and establish a mutual financial cooperative. Therefore, in reality, the phenomenon that a group of over ten initiators initiate and dominate the RMFC exists. [^Back]

    [2]. (1) The exclusive concept came from the study of Yang Ruilong and Yang Qijing (2001) about the system of enterprises. They believed that the system arrangement of enterprises is not the product of minimizing the transaction cost but the game result of the rational participants according to their specific assets rather than specific assets. Exclusive assets are different from specific assets for their emphasis on the exclusiveness of assets and their importance to team production. [^Back]

    [3]. (1) Common members are common farmers before joining the RMFC. Common members and common farmers are the same group. However, the analysis of this paper starts from before the initiation of the RMFC, so the group is called as common farmers before such initiation in the following sections, especially in the part of theoretical analysis. [^Back]

    [4]. (2) The above resources are not necessary to focus on one person. Some member from the group of initiators may have one kind or many kinds of resources. [^Back]

    [5]. (1) After the RMFC works with good performance, many farmers want to participate in the distribution of organizational surplus as shareholders, but the initiators generally disapprove, for the funds are not exclusive resources at the moment. [^Back]

    [6]. (1) This paper does not deny the existence of moral persons in the rural area. Initiating the RMFC, the moral persons take consideration of not only financial benefits but also spiritual benefits such as honour, respect from the community members. However, the moral persons are not common, so this paper takes no consideration of the moral persons when building the model of ex-ante game. [^Back]

    [7]. (2) The Interim Provisions on the Administration of Rural Mutual Cooperatives have no clear requirement on the distributing method of the surplus of the RMFC. However, the Law of the People's Republic of China on Specialized Farmers Cooperatives promulgated in 2006 and the Opinions on Guiding and Promoting the Standardized Development of Specialized Farmers' Cooperatives issued by the nine ministries/commissions, including the Ministry of Agriculture of the People's Republic of China and the National Development and Reform Commission in August, 2014, had clear regulations on distributing the surplus of cooperatives. In other words, the distributable surplus returned according to the proportion of the trading volume (amount) of the members to that of the cooperative should not be lower than 60% of the total distributable surplus. [^Back]

    [8]. (1) The RMFC, restrained by the social network of acquaintances (without cross-regional operation), generally have a limited size and organizational profits. Some cooperative organizations can expand by sharing organizational profits (i.e. by lowering the proportion of profits got by the main initiator) to raise profits of the organization and finally the profits of the main initiator. [^Back]

    [9]. (2) It is because S (a) > (1 - a) R (a) to common farmers, (1 - a) R (a) + S (a) is the increasing function of a. In other words, the higher a is, the higher profits common farmers receive. [^Back]

    [10]. (3) LM Fishing Cooperative had 46 members at the beginning. The capital of CNY 1000 per household was deposited in AJ Cooperative as original issue stocks for dividends. Later, the capital owned by over 30 members which was also deposited in AJ Cooperative did not participate in the distribution of dividends, but just as common shares of the members. [^Back]

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This Article

ISSN:1002-8870

CN: 11-1262/F

Vol , No. 12, Pages 49-62

December 2015

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Article Outline

Abstract

  • 1 Introduction
  • 2 The theoretical framework and the research hypothesis
  • 3 The case study
  • 4 Conclusion and policy implications
  • Footnote

    References