Question
What are some examples of other organizations that are similar to co-ops in not maximizing profit? So although profit maximization is the dominant form and
What are some examples of other organizations that are similar to co-ops in not maximizing profit?
So although profit maximization is the dominant form and the assumption that we'll make in most of our economic rational discussions during this course, there are other forms of organization that actually don't look at maximizing profits or maximizing the total monetary gain of the individuals involved. So we can look at the case of condominiums versus co-ops, for instance.
In a co-operative, of course, the association of renters basically or people in association own the business jointly. And so in a cooperative, we all own the building jointly. We all basically pay our mortgage together.
And so we agree that we're going to pay the mortgage. But the mutual benefit for us is that we all live in the same place. We don't have to move.
Condominium, of course, is specific ownership of the individual unit yourself. And of course, you might have condominium fees. But the ownership of the unit yourself doesn't depend on the other people you live with.
So a cooperative arrangement, of course, is everyone cooperates and decides on the rules. But we own the building or the entire real estate together. In a co-op, of course, you own a fractional share. You only own your own unit.
So one interesting part of this market, of course, is to look at the case of condominiums and co-ops in New York City. You know, while condominium owners must join with condo owners to actually manage in common, they make their own decisions based on their own unit. And in a cooperative sense, co-operative co-ops in that sense actually differ in the sense that the co-op actually manages the units so you have to have a lot of coordination and agreement among co-op members to make decisions in that case.
Nationwide, if we look at the co-op and condo market, condos are actually much more prevalent than co-ops, by a factor of almost 10 to 1. So condominiums are a much more popular form of organization than a co-op. And despite that fact, in New York City, co-ops actually outnumber condominiums by a ratio of about 4 to 1. So it's much more prevalent in New York City to have a cooperative arrangement than to have a condominium.
And that's kind of a curious economic outcome. Many building restrictions in New York have disappeared. And there's always a big push, a very strong push to be able to convert co-ops into condominiums. So why would that be so?
Well, it turns out the typical condominium is worth about 15.5% more than a co-op. And for the reasons of cooperation and the problems in cooperation, it reduces the value of the co-op overall. And the individual ownership in the condominium sense provides greater value to the point where it's about 15.5% more valuable to have a unit owned as a condominium than it would be if you owned it as a cooperative set.
So it's an interesting dichotomy. For some reason, in New York City, there's other values that people put on living in a cooperative arrangement, or a different function or different values that they put on that rather than monetary values. If we look at pure profit maximization, it would be nonsensical for cooperatives not to convert into condo ownership. On the other hand, we see cooperatives actually persisting over time.
And so this is an interesting example that contradicts a little bit of our assumption about economic man always wanting to maximize profits. There are other-- of course, other ways or other organizations. So stop for a moment and think, what other types of organizations are organized in the sense that they're not out to simply maximize profit?
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