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We have two farmers. They work in a coop mode which they set up to take a loan to buy the equipment needed for their farming needs: tractor, harvester etc. They share the bank loan yearly rates and the machinery equally.

In year X, they obtained the same production and sold it at an almost similar price. Thus they had the money to pay their part of the bank rate.

In year Y, Farmer 1 obtained a high production which he sold at the price from year X. Farmer 2 obtained a smaller production which he sold at a lower price than that from year X. Thus, only Farmer 1 has the money to pay its part of the bank rate. They are faced with the following solutions.

Farmer 1 is faced with two solutions:

  1. To buy out Farmer`s 2 part of the credit and use the machinery by himself the following years to increase production to pay the increased bank rate.
  2. To aid Farmer 2 to pay his bank rate in Year Y and continue working in coop mode, being owed by Farmer 2 his part of the bank rate for Year Y.

06cb09aIn both cases, Farmer 1 will pay a doubled rate for the loan in Year Y which will put a strain on his production capacity in Year Z. To avoid this, he would have to use the machinery bought intensively to avoid this happening, endangering the capacity of Farmer 2 of repaying the debt accumulated by him (from either the bank or from Farmer 1).

Farmer 2 is faced with two solutions:

  1. To receive a loan from Farmer 1 to cover the owed money to the bank.
  2. To take another credit to cover his bank rate for Year Y.

In both cases, Farmer 2 will be forced in Year Z to get a high production which he would have to sell at a high price. In order to do so, he will use the machinery bought strenuously putting a strain on Farmer`s 1 production capacity. This could lead to Farmer 1 obtaining a low production and not being able to pay his bank rate in Year Z.

What should the farmers do?

P.S.: This is an adapted version of the Prisoner`s dilemma used in game theory.