80. Abhijit Banerjee, Dilip Mookherjee, Kaivan Munshi and Debraj Ray
Inequality, Control Rights and Rent Seeking: A Theoretical and Empirical Analysis
of the Sugar Cooperatives in Maharashtra
October 1997
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 lumpsum transfers from poorer members
and disproportionate control rights wielded by wealthier members. Transfer 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 lower level of installed crushing capacity. Predictions concerning input price,
capacity levels and participation rates of different classes of farmers are confirmed by
data from nearly one hundred sugar cooperatives in the Indian state of Maharashtra
over the period 1971-93.
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