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

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

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.

Suggested Citation

  • Zhi, Xiaoxu & Liu, Zongzhi & Yuan, Lingran & Shi, Xinjie & Huang, Biao & Gong, Binlei, 2025. "Rent-seeking cooperatives under information asymmetry: Evidence from agricultural subsidy policy in China," Journal of Asian Economics, Elsevier, vol. 100(C).
    • Handle: RePEc:eee:asieco:v:100:y:2025:i:c:s1049007825001186
    DOI: 10.1016/j.asieco.2025.101994
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    JEL classification:

    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy; Animal Welfare Policy
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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