Inequality, Control Rights, and Rent Seeking: Sugar Cooperatives in Maharashtra

Posted: 27 Feb 2001

See all articles by Abhijit V. Banerjee

Abhijit V. Banerjee

Massachusetts Institute of Technology (MIT) - Department of Economics

Kaivan D. Munshi

Brown University - Department of Economics

Dilip Mookherjee

Boston University - Department of Economics

Debraj Ray

New York University (NYU) - Department of Economics; Autonomous University of Barcelona - Instituto de Analisis Economico (CSIC)

Abstract

This paper presents a theory of rent seeking within farmer cooperatives in which inequality of asset ownership affects relative control rights of different groups of members. The two key assumptions are constraints on lump-sum transfers from poorer members and disproportionate control rights wielded by wealthier members. Transfers of rents to the latter are achieved by depressing prices paid for inputs supplied by members and diverting resulting retained earnings. The theory predicts that increased heterogeneity of landholdings in the local area causes increased inefficiency by inducing a lower input price and a lower level of installed crushing capacity. Predictions concerning the effect of the distribution of local landownership on sugarcane price, capacity levels, and participation rates of different classes of farmers are confirmed by data from nearly 100 sugar cooperatives in the Indian state of Maharashtra over the period 1971-93.

Suggested Citation

Banerjee, Abhijit V. and Munshi, Kaivan D. and Mookherjee, Dilip and Ray, Debraj, Inequality, Control Rights, and Rent Seeking: Sugar Cooperatives in Maharashtra. Journal of Political Economy Vol. 109, No. 1, February 2001. Available at SSRN: https://ssrn.com/abstract=256545

Abhijit V. Banerjee

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
Room E52-252D
Cambridge, MA 02142
United States
617-253-8855 (Phone)
617-253-6915 (Fax)

Kaivan D. Munshi (Contact Author)

Brown University - Department of Economics ( email )

64 Waterman Street
Box B
Providence, RI 02912
United States
401-863-9331 (Phone)
401-863-1970 (Fax)

Dilip Mookherjee

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-353-4392 (Phone)
617-353-4143 (Fax)

Debraj Ray

New York University (NYU) - Department of Economics ( email )

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New York, NY 10003
United States
212-998-8906 (Phone)
212-995-4186 (Fax)

Autonomous University of Barcelona - Instituto de Analisis Economico (CSIC)

Campus UAB
E-08193 Bellaterra
Spain

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