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Discussion Papers
Department of Economics
University of Copenhagen

No. 11-11

Law and Peace: Contracts and the Success of the Danish Dairy Cooperatives

Ingrid Henriksen, Morten Hviid, and Paul Sharp

ØsterFarimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark Tel.: +45 35 32 30 01 – Fax: +45 35 32 30 00 http://www.econ.ku.dk

ISSN: 1601-2461 (E)

Law and peace: Contracts and the
success of the Danish dairy cooperatives1

Ingrid Henriksen, University of Copenhagen

Morten Hviid, University of East Anglia

Paul Sharp, Humboldt University /University of Copenhagen

Abstract: We consider the successful early emergence of cooperative creameries in Denmark in the late nineteenth century within the framework of the ‘new institutional economics’ presented by Williamson (2000). Previous work has focused on the social cohesion of the Danes, but we demonstrate that this was not sufficient forthe success. The Danish legal system, which we compare to that of other countries, was also of crucial importance, along with the way in which rules were monitored and enforced. Of particular importance was the Danish cooperatives’ use of contracts, which we explore with evidence from a variety of primary and secondary sources.

Keywords: Cooperatives, creameries,contracts, new institutional economics

JEL codes: K12, L31, N43, N53, Q13

1 Financial support from the Danish Social Science Research Council, grant no. FOR890 and the Carlsberg Foundation is gratefully acknowledged. We thank Martin Bork and Susanne Krogh Jensen for very conscientious research assistance. Earlier versions of this paper were presented at the74th EAAE seminar, 2001, the 4th EHES conference, 2001, and the 6th ISNIE conference, 2002 as well as at seminars at the Universities of Aarhus and East Anglia. We thank the participants and in particular Graham Brownlow, Francesco Galassi, Tim Guinnane, Rob Heverly, Markus Lampe, Karl Gunnar Persson and Rich Sexton for helpful comments.



As is well known, the cooperative movement in Denmark was extremely successful, not just in terms of increasing production and quality, but also in terms of the number of cooperatives and their size, see Henriksen (1999) and O’Rourke (2002, 2007). Recent work has reaffirmed the crucial importance of the cooperatives for dairying (Henriksen et al 2011). Moreover, thisdevelopment was already apparent from a far earlier date than most other countries, taking off already in the 1880s. In the late nineteenth century, Danish butter increased both its market share and price in the important English market. In doing so, it largely benefited at the cost of another large supplier to that market, Ireland. As described in Ó Gráda (1977) and McCabe (1906), the growth increameries and in particular cooperative creameries was slower in Ireland than in Denmark and, at least before 1914, their success was more modest. By 1906, Denmark, which possessed just half the land area of Ireland, had almost twice as many creameries, of which over 80 per cent were co‐operatives as compared to just 44 per cent in Ireland.

Successful development of cooperation iscritically dependent upon the homogeneity of economic interests among members. That is one reason why cooperatives tend to have a larger market share in products that are simple to grade like butter. But as Hansmann (2000, p. 140) puts it there is evidence that homogeneity among members ‘along with other more personal dimensions can also be important’ and that cooperatives emerged ‘when the local...
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