COMMERCIALIZATION PERFORMANCE 65
These correlations face significant potential endogeneity problems, however, as the marketing performance of the cooperative may itself influence both the number and type of members. For instance, an organization that performs well may attract more members than does a weakly performing one.7 As a result, the estimates of membership on performance are likely to understate the magnitude of the (negative) relationship. Similar arguments may apply to aggregated product, although the sign would then be undetermined. Such biases can be overcome using an external source of variation in both member- ship and aggregated product.
To overcome this potential bias, we use the above theory to justify the use of social activities as instruments for the size of the cooperative. To be valid, however, these instruments must respect the following three criteria: 1. a cooperative’s engagement in such activities was not driven by its mar- keting performance;
2. there are no other unaccounted-for factors that may have driven both a cooperative’s marketing performance and its portfolio of activities; and
3. the effect of these social activities on marketing performance is uniquely driven by their effects on membership.
The strong governmental and external partners’ support for social activities in cooperatives tend to support criterion 1. For instance, the Federal Coop- erative Commission requires that all registered cooperatives allocate between 1 and 5 percent of their earnings to a social fund that finances such activi- ties as HIV/AIDS awareness and prevention training. Further, controlling for a cooperative’s external partner may address concerns regarding criterion 2. However, criterion 3 cannot be directly tested unless other sets of instru- ments are also available. As described below, we use a cooperative’s original number of members as an extra instrument to perform such tests. These results are presented in columns (3) and (4) in Table 5.4, where we report two-stage least square estimates of a linear probability model of marketing performance. The results suggest that the relationships identified in the left part of the table hold, once one accounts for potential sources of endogeneity. In addition, the numbers tend to be higher in magnitude, sup- porting the idea of a reverse causality. Overall, the results suggest that a 1 percent increase in the size of the organization may lead to a 0.3 percent decrease in the probability that it provides marketing services to its mem- bers. Finally, we use Sargan’s (1958) and Basmann’s (1960) overidentification
7 However, most of the organizations (75 percent) have increased their memberships since their creation.
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