Skip to main content
SpringerLink
Log in

Economic Rents and the Power of Scarcity

  • Chapter
  • First Online:
Rational Exuberance for Renewable Energy

Part of the book series: Green Energy and Technology ((GREEN))

  • 709 Accesses

Abstract

The previous chapter dealt with the power of choice and concluded that development policy should ensure that the end-users are adequately informed and empowered to make choices for themselves. In the medium-term, fiscal and financial incentives should be geared towards bringing about sufficient awareness and in supporting, rather than supplanting, existing distribution channels for technology options or for financing. In a similar vein, the next chapter analyzes the power of scarcity and highlights the backward drift of surpluses to the owners of the scarce resources: sugarcane farmers in the case of the sugar industry. Even as the sugar industry is studied in detail, the central theme pertaining to scarcity rents is equally applicable to the solar PV industry (silicon wafers), wind energy sector (turbines and sites), small hydro sector (hydro-mechanical equipment and sites) etc.

“It is commonly said, that a sugar planter expects that the rum and the molasses should defray the whole expense of his cultivation and that his sugar should be all clear profit. If this be true, for I pretend not to affirm it, it is as if a corn farmer expected to defray the expense of his cultivation with the chaff and the straw, and that the grain should be all clear profit.”

— Adam Smith “Rent of Land”, The Wealth of Nations.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 84.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 109.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Notes

  1. 1.

    High-fructose corn syrup (HFCSF)—called isoglucose in the UK and glucose-fructose in Canada—is typically used as a sugar substitute in processed foods and beverages, including soft drinks, yogurt, industrial bread, cookies, salad dressing, and tomato soup. Its potential as a substitute for sugar is expected to be acutely limited. (http://en.wikipedia.org/wiki/High-fructose_corn_syrup).

  2. 2.

    This is in sharp contrast with Brazil, the largest cane/sugar producer in the world, where 75% of the sugarcane is grown by the mills themselves and only 25% by independent producers [23].

  3. 3.

    A portion of sugar produced (presently 10%, proposed to be raised to 20%) is procured by the government at administered prices for sale through the public distribution system. With a view to spreading supply evenly, the residual output destined for free market sale is released each month at 1/12th of the annual production.

  4. 4.

    http://eaindustry.nic.in/; Economic Advisor to the Ministry of Commerce and Industry, Government of India.

  5. 5.

    Likewise, the wage rates for temporary labor and the very availability of such labor, are determined by alternative employment opportunities, including by the National Rural Employment Guarantee Scheme (nrega.nic.in).

  6. 6.

    On average, 1 in 4 farmers chooses to supply cane (25% of the cane produced) to the informal sector for jaggery and khandsari (cottage sugar) production [38].

  7. 7.

    Mnemonically, these letters represent R(eward for cooperation), T(emptation to defect), P(unishment) and S(ucker) payoffs.

  8. 8.

    For the purpose of generalization, it is presumed that the farmer, as referred to in this discussion, is also the owner of the land being cultivated: compensation for supply of cane therefore inter alia includes the rent on land, the wage for direct labor and a profit margin.

  9. 9.

    In the cane growing state of Uttar Pradesh alone, there have been instances when the farmers are cumulatively owed in excess of US$ 600 million [21].

  10. 10.

    Reliance Power Limited has received the concession to develop the 4000 MW, Sasan power project at a tariff of INR 1.19 per kW h [39].

  11. 11.

    Discounted at 11%, the long-period average-(real)-equity-returns earned on the Bombay Stock Exchange benchmark index (BSE Sensex) [26].

References

  1. Ahmed F (2009) Sugar: bitter sweet. Businessworld, p 13. Accessed 7 Sept 2009

    Google Scholar 

  2. Allirajan M (2008) Sugar: sweet options. Businessworld. Accessed 18 Jan 2008

    Google Scholar 

  3. Banerjee A, Mookherjee D, Munshi K, Ray D (2001) Inequality, control rights, and rent seeking: sugar cooperatives in Maharashtra. J Political Econ 109(1):138–190

    Article  Google Scholar 

  4. Bell FW, Lacombe DJ, Ryan MP, May DL (2000) An empirical re-examination of the hotelling valuation principle. J Econ Res 5:1–15

    Google Scholar 

  5. Bulkeley WM (2007) Kodak’s strategy for first printer—cheaper cartridges. The Wall Street J. Accessed 6 Feb 2007

    Google Scholar 

  6. Charness G, Frechette GR, Qin C-Z (2007) Endogenous transfers in the prisoner’s dilemma game: an experimental test of cooperation and coordination. Games Econ Behav 60(2):287–306. 2006

    Article  MATH  MathSciNet  Google Scholar 

  7. Dutta AP (2009) Indian sugar mills generate as much ‘Green’ energy as windmills, and at half the cost. Down Earth 18(2), Accessed 27 May 2009

    Google Scholar 

  8. Fujiwara-Greve T, Yasuda Y (2009) Cooperation in repeated prisoner’s dilemma with outside options. 20 June 2009. http://ssrn.com/abstract=1092359

  9. Gemmill G (1980) Form of function, taste and demand for sugar in seventy-three nations. Eur Econ Rev 13(2):189–205

    Article  Google Scholar 

  10. Ghosh S (2002) Electricity consumption and economic growth in India. Energy Policy 30(2):125–129

    Article  Google Scholar 

  11. Gipe P (2009) India’s 1.1 billion move to feed-in tariffs. RenewableEnergyWorld.com. Accessed 6 Oct 2009

    Google Scholar 

  12. Girvan NP (1987) Transnational corporations and non-fuel primary commodities in developing countries. World Dev 15(5):713–740

    Article  Google Scholar 

  13. Godbole M (2000) Co‐operative sugar factories in Maharashtra—case for a fresh look. Econ Polit Weekly 35(6):420–424

    Google Scholar 

  14. Granger CWJ (1969) Investigating causal relations by econometric methods and cross-spectral methods. Econometrica 34:424–438

    Article  Google Scholar 

  15. Harris S (1987) Current issues in the world sugar economy. Food Policy 12(2):127–145

    Article  Google Scholar 

  16. Haya B, Kirpekar S, Ranganathan M (2005) A sweet choice for power? evaluating climate change financing for sugar mill cogeneration in India. University of California at Berkeley, Breslauer symposium, Paper 12. http://repositories.cdlib.org/cgi/viewcontent.cgi?article=1019&context=ucias

  17. Hearne RR, Easter WK (1997) The economic and financial gains from water markets in Chile. Agric Econ 15(3):187–199

    Article  Google Scholar 

  18. Hoffmann R, Ging LC, Ramasamy B, Yeung M (2005) FDI and pollution: a granger causality test using panel data. J Int Dev 17(3):311–317

    Article  Google Scholar 

  19. Hotelling H (1931) The economics of exhaustible resources. J Polit Econ 39:137–175

    Google Scholar 

  20. Hughes H, Singh S (1978) Economic rent: incidence in selected metals and minerals. Resour Policy 4(2):135–145

    Article  Google Scholar 

  21. Jishnu L, Srivastava S (2005) Sugar: cane wars; Sugar is suddenly hot. And so is the fight for capacity and leadership. Businessworld. Accessed 29 Aug 2005

    Google Scholar 

  22. Kilima FTM (2006) Are price changes in the world market transmitted to markets in less developed countries? A case study of sugar, cotton, wheat, and rice in Tanzania, IIIS Discussion Paper No.160, June 2006

    Google Scholar 

  23. Krivonos E, Olarreaga M (2006) Sugar prices, labour income and poverty in Brazil. World Bank Policy Research Working Paper 3874, April 2006

    Google Scholar 

  24. Liu LC, Hsu C Ed, Younis MZ (2008) The association between government expenditure and economic growth: granger causality test of US Data, 1947–2002. J Public Budgeting, Accounting and Financial Management, 20(4):439–452. http://works.bepress.com/cgi/viewcontent.cgi?article=1020&context=edhsu

  25. Mbohwa C, Fukuda S (2003) Electricity from bagasse in Zimbabwe. Biomass and Bioenergy 25(2):197–207

    Google Scholar 

  26. Mehra R (2006) The equity premium in India. National Bureau of Economic Research, NBER Working Paper 12434, August 2006

    Google Scholar 

  27. Menon S (2009) Merchant power: to cap or not to cap. Businessworld p 22. Accessed 14 Sept 2009

    Google Scholar 

  28. Miller MH, Upton CW (1985) A test of the hotelling valuation principle. J Polit Econ 93(1):1–25

    Article  Google Scholar 

  29. MNRE (2008) Annual report of the ministry of new and renewable energy, Government of India, 2007–2008, p 47

    Google Scholar 

  30. Noble PM, Gruca TS (1999) Industrial pricing: theory and managerial practice. Mark Sci 18(3):435–454

    Article  Google Scholar 

  31. Nopany C (2008) Insider view: nothing sweet about it, Businessworld, 2008. http://www.businessworld.in/index.php/Nothing-Sweet-About-It.html

  32. Pagoulatos E, Sorensen R (1986) What determines the elasticity of industry demand? Int J Ind Org 4(3):237–250

    Article  Google Scholar 

  33. Pirard R, Irland LC (2007) Missing links between timber scarcity and industrial overcapacity: lessons from the Indonesian pulp and paper expansion. For Policy Econ 9(8):1056–1070

    Google Scholar 

  34. Purohit P, Michaelowa A (2007) CDM Potential of Bagasse Cogeneration in India. Energy Policy 35(10):4779–4798

    Article  Google Scholar 

  35. Rowse JG, Copithorne LW (1982) Natural resource programming models and scarcity rents. Resour Energy 4(1):59–85

    Article  Google Scholar 

  36. Smith RP, Sola M, Spagnolo F (2000) The prisoners’ dilemma and regime-switching in the Greek–Turkish arms race. J Peace Res 37:737–750

    Article  Google Scholar 

  37. Smouse SM, Staats GE, Rao SN, Goldman R, Hess D (1998) Promotion of biomass cogeneration with power export in the Indian sugar industry. Fuel Process Technol 54(1):227–247

    Article  Google Scholar 

  38. Subramani MR (2006) Mills wrangle for sugarcane in UP. The Hindu—BusinessLine, 17th Jan 2006. http://www.thehindubusinessline.com/2006/01/17/stories/2006011701651200.htm

  39. Subramaniam K (2009) The power of shortage. Businessworld, pp 38–39. Accessed 28 Sept 2009

    Google Scholar 

  40. Sunnevag KJ (2000) Designing auctions for offshore petroleum lease allocation. Resour Policy 26(1):3–16

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Verdurous Solutions Private Limited, Navillu Road 7th Cross 145, Kuvempunagar, Mysore, 570023, Karnataka, India

    Srinivasan Sunderasan

Authors
  1. Srinivasan Sunderasan
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Srinivasan Sunderasan .

Rights and permissions

Reprints and permissions

Copyright information

© 2011 Springer-Verlag London Limited

About this chapter

Cite this chapter

Sunderasan, S. (2011). Economic Rents and the Power of Scarcity. In: Rational Exuberance for Renewable Energy. Green Energy and Technology. Springer, London. https://doi.org/10.1007/978-0-85729-212-4_3

Download citation

  • DOI: https://doi.org/10.1007/978-0-85729-212-4_3

  • Published:

  • Publisher Name: Springer, London

  • Print ISBN: 978-0-85729-211-7

  • Online ISBN: 978-0-85729-212-4

  • eBook Packages: EngineeringEngineering (R0)

Publish with us

Policies and ethics

Search

Navigation