Cooperatives for fruits and vegetables in emerging countries: Rationalization and impact of decentralization

• Allocating externalities is important for network efficiency and stability.
• We show that explicit cooperation is not essential for network efficient performance.
• Decentralized settings can also entail efficient and stable network.
• Decentralization and profit sharing is important especially in competitive settings.
• We highlight the role of a coordinator in a cooperative setting.

We develop a (noncooperative) game theoretic model for a decentralized setting wherein fringe farmers compete with a two-tier cooperative network involving network farmers and a coordinator. We examine the roles of the coordinator and profit sharing in allocating costs/benefits of externalities in enhancing network efficiency and stability. Our main finding is that using profit sharing based mechanism the coordinator can overcome inherent inefficiency and instability of decentralization and noncooperative behavior of the network farmers. The roles of the coordinator and profit sharing are particularly important when it is economical for both network and fringe farmers to supply the product.