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Ownership Form and Contractual Enefficiency: Comparing Performance of Cooperatives and Private Factories in the Indian Sugar Industry

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  • Sanghamitra Das

    (Indian Statistical Institute, Delhi)

  • Dilip Mookherjee

    (Institute for Economic Development, Boston University)

Abstract

This paper explores the role of differing contractual relationships between sugarcane farmers and sugar factories in India resulting from differing ownership structures. In Maharashtra most sugar factories are cooperatively owned by cane farmers, while in Uttar Pradesh most factories are privately owned and purchase cane from independent peasant farmers. The key incentive problem is that residual claimants to factory profits are inclined to exploit their monopsony power and underprice cane supplied by farmers. This results in undersupply of cane to factories, the extent of which depends on who owns the factory, besides the distribution of land between small and big growers. Predictions of the model are empirically verified from panel data spanning 1982–95 for private and coop factories in the two states. We find that the respective cane price distortions overwhelm the effect of changes in cane quality, technological change, prices or irrigation in accounting for differences in growth of the industry between different ownership forms and regions over this period.

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  • Sanghamitra Das & Dilip Mookherjee, 2004. "Ownership Form and Contractual Enefficiency: Comparing Performance of Cooperatives and Private Factories in the Indian Sugar Industry," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-139, Boston University - Department of Economics.
    • Handle: RePEc:bos:iedwpr:dp-139
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    References listed on IDEAS

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    1. Gene M. Grossman & Elhanan Helpman, 1996. "Electoral Competition and Special Interest Politics," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(2), pages 265-286.
    2. Abhijit Banerjee & Dilip Mookherjee & Kaivan Munshi & Debraj Ray, 2001. "Inequality, Control Rights, and Rent Seeking: Sugar Cooperatives in Maharashtra," Journal of Political Economy, University of Chicago Press, vol. 109(1), pages 138-190, February.
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    Cited by:

    1. Bardhan, Pranab & Luca, Michael & Mookherjee, Dilip & Pino, Francisco, 2014. "Evolution of land distribution in West Bengal 1967–2004: Role of land reform and demographic changes," Journal of Development Economics, Elsevier, vol. 110(C), pages 171-190.
    2. Mala Lalvani, 2008. "Sugar Co-operatives in Maharashtra: A Political Economy Perspective," Journal of Development Studies, Taylor & Francis Journals, vol. 44(10), pages 1474-1505.

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