An old theoretical and empirical literature has struggled with how ownership structure affects economic outcomes. We seek to answer this question by examining the effect that different ownership structures have on the outcomes of sugarcane farmers in India. The econometric strategy exploits the zoning system - whereby farmers living within a zone are forced to sell sugar to the mill designated to that zone - to estimate this effect, by surveying farmers at the boundaries of the zones. We use two unique sets of data - satellite images merged with GPS maps of command area borders to measure crop choices along the borders, and a survey to determine the effects of crop choices on farmer welfare. We find that private mills encourage sugarcane production, and that this effect is concentrated on farmers that own less land. Private mills appear to provide more loans for poorer farmers, thereby encouraging them to cultivate cane. Consumption is also relatively higher for poorer farmers living on the private side of the border. Soil testing confirms that results are not driven simply by variation in soil quality. These results suggest that government subsidization of cooperative or public mills is unnecessary.
Sendhil Mullainathan; Sandip Sukhtankarz. Ownership Structure and Economic Outcomes: The Case of Sugarcane Mills in India. (2011) 33 pp.