On the stability and viability of co-operatives: The kibbutz as an example

Co-operatives seem to be less stable than capitalist firms: although many are formed, few stay alive as co-operatives. Our paper inquires into the stability of co-operatives using the kibbutz as an example. The results of the analysis may carry over to many other types of co-operatives, in spite of the idiosyncrasies of each. The kibbutz is modelled as a co-operative club to account for the public consumption provided by the community. This leads to increasing returns, but taking account of Holmström's team effect on members' incentives to exert themselves, we obtain conditions under which an internal effort optimiser may exist. The resulting model enables us to examine the stability of the co-operative club. For the kibbutz, the analysis shows that the size of the set of potential members preferring co-operative life has shrunk over time.