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Subjective land ownership and the endowment effect in land markets: A case study of the farmland “three rights separation” reform in China

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  • Yan, Jinming
  • Yang, Yumeng
  • Xia, Fangzhou

Abstract

The endowment effect involving rural land is one of the most important ways to study the micro-psychology of land policies and is often regarded as a market friction that prevents market clearing and the efficient determination of fair market prices. Meanwhile, the endowment effect usually has a stronger association with a subjective feeling of land ownership than factual ownership. It is necessary, therefore, to consider the change of the endowment effect during the process of land property rights reform to better facilitate market efficiency. On the basis of the “three rights separation” reform in China, we applied behavioral insights into the development of a theoretical framework that analyzes the impact of subjective land ownership on the endowment effect from irrational perspectives. Our theoretical framework and empirical analysis explain how the clarity, integrity, and stability of subjective land ownership under the “three rights separation” system influence the endowment effect on farmers. Using propensity score matching, we found that the clarity, integrity, and stability of subjective land ownership have a strong impact on the increment of the endowment effect. The empirical results prove that appropriate ambiguous land property rights and term limits are necessary and beneficial to control the endowment effect. The findings also remind us to seek an equilibrium point between subjective land ownership clarity, integrity, stability, and the endowment effect when implementing land property rights reform. This study may serve as a reference for introducing behavioral economics into land-use policy optimization in the future.

Suggested Citation

  • Yan, Jinming & Yang, Yumeng & Xia, Fangzhou, 2021. "Subjective land ownership and the endowment effect in land markets: A case study of the farmland “three rights separation” reform in China," Land Use Policy, Elsevier, vol. 101(C).
    • Handle: RePEc:eee:lauspo:v:101:y:2021:i:c:s0264837719323208
    DOI: 10.1016/j.landusepol.2020.105137
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