principals. The principals, on the other hand, may wish that a particular vendor be selected, so they reject the selection offered by the cooperative.
Not only the actions or inactions of both the agent and principal influence the outcome, but also there are random factors, beyond the control of either the principal or the agent (which influence the outcome). Moreover, there are costs borne by the agent in performing the action, and by the principal in providing compensation in addition to the costs of monitoring the behavior of the agent. As such, these tools of agency theory are an appropriate lens by which to model Cooperative Public Purchasing (CPP) for at least three reasons. First, the nomenclature developed here can apply to both public …show more content…
Ronald Coase (1937) was the first to reformulate the notion of the firm in orthodox economic theory from that conceived as a “black box” that transforms inputs (resources) into outputs (production). Instead, he conceived it as the neoclassical economics perspective of a system of relationships which directs production. This implies that a firm is more efficient at aligning resources with outputs than is the market. As Harold Demsetz (1983) observes, “it is a mistake to confuse the firm of economic theory with its real world namesake. The chief mission of neoclassical economics is to understand how the price system coordinates the use of resources, not the inner workings of real firms.” Similar to Coasian economics, procurement can be arranged through the market and regulated by the price mechanism with all of its attendant hidden costs to the procurement official, or the exchange transactions of procurement can be vertically integrated and ordered through the firm in a hierarchy where purchasing is integrated with the needs for the same products by other principals (and as we shall see, their agents). This theory is relevant in decision making process among the FOs which eventually affect the effectiveness of the IPP of the …show more content…
These include the relationship between the prices of commodities and the prices of the productive factors or inputs of production used to produce them and also the relationships between the prices of commodities and productive factors, on the one hand, and the quantities of these commodities and productive factors that are produced or used, on the other. Associated with the theory of production is the productive efficiency which is concerned with production of goods and services with the optimal combination of inputs to produce maximum output for the minimum cost. Productive efficiency occurs when units of goods are being supplied at the lowest possible average total cost. ((Dorfman, 2015). Income is a primordial stimulus that concerns the economic well-being of both the farmers and the NFA being government controlled corporation, hence this theory takes effect in their productive