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

Sanghamitra Das and Dilip Mookherjee ()

No dp-139, Boston University - Department of Economics - The Institute for Economic Development Working Papers Series from Boston University - Department of Economics

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.

New Economics Papers: this item is included in nep-agr, nep-cse and nep-cwa
Date: 2004-04
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Working Paper: Ownership form and contractual ineficiency: Comparing performance of cooperatives and private factories in the Indian sugar industry (2004) Downloads
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