We study the provision of public goods when all agents have complete information and can write binding agreements. This framework is in deliberate contrast to a traditional view of the free‐rider problem based on hidden information or voluntary provision. We focus on coalition formation as a potential source of inefficiency. To this end, we develop a notion of an equilibrium coalition structure, based on the assumption that each coalition that forms does so under a rational prediction of the society‐wide coalition structure. In a simple model, we characterize the (unique) equilibrium coalition structure. Only in some cases does the equilibrium involve full cooperation, resulting in efficient provision of the public good. In other cases, the equilibrium consists of several coalitions and inefficient provision. However, the degree of inefficiency and the number of possible coalitions are bounded.

This paper presents a theory of rent seeking within farmer cooperatives in which inequality of asset ownership affects relative control rights of different groups of members. The two key assumptions are constraints on lump‐sum transfers from poorer members and disproportionate control rights wielded by wealthier members. Transfers of rents to the latter are achieved by depressing prices paid for inputs supplied by members and diverting resulting retained earnings. The theory predicts that increased heterogeneity of landholdings in the local area causes increased inefficiency by inducing a lower input price and a lower level of installed crushing capacity. Predictions concerning the effect of the distribution of local landownership on sugarcane price, capacity levels, and participation rates of different classes of farmers are confirmed by data from nearly 100 sugar cooperatives in the Indian state of Maharashtra over the period 1971–93.