Rent-seeking cooperatives under information asymmetry: Evidence from agricultural subsidy policy in China

Xiaoxu Zhi, Zongzhi Liu, Lingran Yuan, Xinjie Shi, Biao Huang and Binlei Gong

Journal of Asian Economics, 2025, vol. 100, issue C

Abstract: We tell a distinct story of subsidy-induced market inefficiency using the case of rent-seeking shell cooperatives in China. We dynamically identify them from 13 million observations, and examine their crowding-out effects in the market decision and performance dimensions. We find that a doubling of subsidy leads to 0.3 more shell entrants and 0.2 more shell converts per village. This brings a 2.6% increase in the proportion of shell cooperatives, a corresponding 2.7% decline in the economic performance of non-shell cooperatives, and a 3.6% reduction in the subsidy effect. The prevalence of shell cooperatives can be attributed to the strategic behavior of cooperatives and farmers caused by information asymmetry (weak government regulation) and subsidy-seeking motivation. Among them, the advantaged farmers are the promoters and ultimate beneficiaries.

Keywords: Agricultural cooperative subsidy; Rent-seeking; Information asymmetry; Strategic behavior (search for similar items in EconPapers)
JEL-codes: H20 Q13 Q18 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:100:y:2025:i:c:s1049007825001186

DOI: 10.1016/j.asieco.2025.101994

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