IDEAS home Printed from https://ideas.repec.org/a/gam/jlands/v10y2021i8p837-d612063.html
   My bibliography  Save this article

Price Signal of Tilled Land in Rural China: An Empirically Oriented Transaction Costs Study Based on Contract Theory

Author

Listed:
  • Chao Hu

    (College of Economics and Management, Huazhong Agricultural University, Wuhan 430070, China)

  • Jianping Tao

    (College of Economics and Management, Huazhong Agricultural University, Wuhan 430070, China)

  • Donghao Zhang

    (School of Insurance, Southwestern University of Finance and Economics, Chengdu 611130, China)

  • Damian Adams

    (Food and Resource Economics Department, School of Forest, Fisheries, and Geomatics Sciences, University of Florida, Gainesville, FL 32611, USA)

Abstract

Prices are effective signals of many market conditions, while underpricing of tilled land in rural China poses a dilemma to this common sense. Using n = 191 imputed contracts in rural China, this paper aims to investigate the role of ambiguous property rights in the context of agricultural reforms. Using rank statistics, several candidate variables in the transaction costs function f c (•) were identified, including BMI (Body Mass Index), Knowledge, Subtraction and Farming Experience. The results show clear evidence for underpricing to restrain competition under ambiguous property rights. More illuminatingly, non-parametric regression analysis specifies a well-founded transaction costs function: increasing Subtraction by one unit increases transaction costs by the equivalent of US$513.40, while a one-year increase of farming experience reduces transaction costs by US$116.20, ceteris paribus. It concludes that social costs behind underpricing are detrimental to China’s rural reform. This study contributes to economic theory, with important implications for policy makers. To encourage smooth transmission of price signals, it is important to consider farmer characteristics and develop professional farmers.

Suggested Citation

  • Chao Hu & Jianping Tao & Donghao Zhang & Damian Adams, 2021. "Price Signal of Tilled Land in Rural China: An Empirically Oriented Transaction Costs Study Based on Contract Theory," Land, MDPI, vol. 10(8), pages 1-20, August.
    • Handle: RePEc:gam:jlands:v:10:y:2021:i:8:p:837-:d:612063
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2073-445X/10/8/837/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2073-445X/10/8/837/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Zhangkai Huang & Lixing Li & Guangrong Ma & Lixin Colin Xu, 2017. "Hayek, Local Information, and Commanding Heights: Decentralizing State-Owned Enterprises in China," American Economic Review, American Economic Association, vol. 107(8), pages 2455-2478, August.
    2. Williamson, Oliver E., 2010. "Transaction Cost Economics: The Natural Progression," Journal of Retailing, Elsevier, vol. 86(3), pages 215-226.
    3. R. H. Coase, 2013. "The Problem of Social Cost," Journal of Law and Economics, University of Chicago Press, vol. 56(4), pages 837-877.
    4. Hanming Fang & Michael P. Keane & Dan Silverman, 2008. "Sources of Advantageous Selection: Evidence from the Medigap Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 303-350, April.
    5. Jean-Jacques Laffont & Mohamed Salah Matoussi, 1995. "Moral Hazard, Financial Constraints and Sharecropping in El Oulja," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(3), pages 381-399.
    6. Cheung, Steven N S, 1983. "The Contractual Nature of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 26(1), pages 1-21, April.
    7. Ronald H. Coase, 2000. "The new institutional economics," Chapters, in: Claude Ménard (ed.), Institutions, Contracts and Organizations, chapter 1, Edward Elgar Publishing.
    8. Daniel A. Ackerberg & Maristella Botticini, 2002. "Endogenous Matching and the Empirical Determinants of Contract Form," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 564-591, June.
    9. Hong, Zhaohui & Sun, Yi, 2020. "Power, capital, and the poverty of farmers’ land rights in China," Land Use Policy, Elsevier, vol. 92(C).
    10. Gabrielle S. Adams & Benjamin A. Converse & Andrew H. Hales & Leidy E. Klotz, 2021. "People systematically overlook subtractive changes," Nature, Nature, vol. 592(7853), pages 258-261, April.
    11. George A. Akerlof, 1970. "The Market for "Lemons": Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(3), pages 488-500.
    12. Samuelson, Paul, 1995. "Some uneasiness with the Coase Theorem," Japan and the World Economy, Elsevier, vol. 7(1), pages 1-7, May.
    13. Staten, Michael E & Gilley, Otis W & Umbeck, John, 1990. "Information Costs and the Organization of Credit Markets: A Theory of Indirect Lending," Economic Inquiry, Western Economic Association International, vol. 28(3), pages 508-529, July.
    14. Cheung, Steven N S, 1973. "The Fable of the Bees: An Economic Investigation," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 11-33, April.
    15. Umbeck, John, 1977. "A Theory of Contract Choice and the California Gold Rush," Journal of Law and Economics, University of Chicago Press, vol. 20(2), pages 421-437, October.
    16. John H. Cochrane, 2011. "Presidential Address: Discount Rates," Journal of Finance, American Finance Association, vol. 66(4), pages 1047-1108, August.
    17. Steven G. Medema, 2020. "The Coase Theorem at Sixty," Journal of Economic Literature, American Economic Association, vol. 58(4), pages 1045-1128, December.
    18. Knoeber, Charles R, 1997. "Explaining State Bans on Corporate Farming," Economic Inquiry, Western Economic Association International, vol. 35(1), pages 151-166, January.
    19. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(4), pages 629-649.
    20. Hongbin Cai & Yuyu Chen & Hanming Fang & Li-An Zhou, 2015. "The Effect of Microinsurance on Economic Activities: Evidence from a Randomized Field Experiment," The Review of Economics and Statistics, MIT Press, vol. 97(2), pages 287-300, May.
    21. Roger D. Congleton, 2019. "On the emergence of a classic work: a short history of the impact of Gordon Tullock’s Welfare Costs of Tariffs, Monopolies, and Theft," Public Choice, Springer, vol. 181(1), pages 5-12, October.
    22. Leffler, Keith B & Rucker, Randal R, 1991. "Transactions Costs and the Efficient Organization of Production: A Study of Timber-Harvesting Contracts," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1060-1087, October.
    23. Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56(4), pages 279-279.
    24. Cheung, Steven N S, 1977. "Why Are Better Seats "Underpriced?"," Economic Inquiry, Western Economic Association International, vol. 15(4), pages 513-522, October.
    25. Xianqing Ji & Shouying Liu & Jianan Yan & Youyi Li, 2021. "Does Security of Land Operational Rights Matter for the Improvement of Agricultural Production Efficiency under the Collective Ownership in China?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 29(1), pages 87-108, January.
    26. James J. Heckman & Burton Singer, 2017. "Abducting Economics," American Economic Review, American Economic Association, vol. 107(5), pages 298-302, May.
    27. Friedman, Milton & Schwartz, Anna J, 1991. "Alternative Approaches to Analyzing Economic Data," American Economic Review, American Economic Association, vol. 81(1), pages 39-49, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yuqian Li & Wei-Ling Hsu & Yuwen Zhang, 2022. "Evaluation Study on the Ecosystem Governance of Industry–Education Integration Platform in China," Sustainability, MDPI, vol. 14(20), pages 1-15, October.
    2. Benhong Peng & Yinyin Zhao & Ehsan Elahi & Anxia Wan, 2022. "Does the business environment improve the competitiveness of start‐ups? The moderating effect of cross‐border ability and the mediating effect of entrepreneurship," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(5), pages 1173-1185, September.
    3. Jia Chen & Jingwen Xu & Hongxiao Zhang, 2022. "Impact of Relationship Governance and Third-Party Intervention on Farmland Transfer Rents—Empirical Evidence from Rural China," Land, MDPI, vol. 11(5), pages 1-16, May.
    4. Chao Hu & Damian C. Adams & Huachao Feng & Jing Cheng, 2023. "Refining the Rent Dissipation Model in Land Use: Application to Agricultural Insurance in China," Land, MDPI, vol. 12(2), pages 1-18, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hongyun Han & Hanning Li, 2018. "The Distribution of Residual Controls and Risk Sharing: A Case Study of Farmland Transfer in China," Sustainability, MDPI, vol. 10(6), pages 1-20, June.
    2. Ibrahim Demir, 2016. "The firm size, farm size, and transaction costs: the case of hazelnut farms in Turkey," Agricultural Economics, International Association of Agricultural Economists, vol. 47(1), pages 81-90, January.
    3. Kiil, Astrid, 2012. "What characterises the privately insured in universal health care systems? A review of the empirical evidence," Health Policy, Elsevier, vol. 106(1), pages 60-75.
    4. Tomáš Otáhal, 2009. "Problém zastoupení v nové institucionální ekonomii [The Agency Problem in New Institutional Economics]," Politická ekonomie, Prague University of Economics and Business, vol. 2009(5), pages 677-695.
    5. Steven G. Medema, 2020. "The Coase Theorem at Sixty," Journal of Economic Literature, American Economic Association, vol. 58(4), pages 1045-1128, December.
    6. Andrea Attar & Thomas Mariotti & François Salanié, 2021. "Entry-Proofness and Discriminatory Pricing under Adverse Selection," American Economic Review, American Economic Association, vol. 111(8), pages 2623-2659, August.
    7. Kherallah, Mylène & Kirsten, Johann, 2001. "The new institutional economics," MSSD discussion papers 41, International Food Policy Research Institute (IFPRI).
    8. Daniel McFadden & Carlos Noton & Pau Olivella, "undated". "Remedies for Sick Insurance," Working Papers 620, Barcelona School of Economics.
    9. repec:mea:meawpa:12259 is not listed on IDEAS
    10. Liran Einav & Amy Finkelstein & Mark R. Cullen, 2010. "Estimating Welfare in Insurance Markets Using Variation in Prices," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 125(3), pages 877-921.
    11. Hanming Fang & Michael P. Keane & Dan Silverman, 2008. "Sources of Advantageous Selection: Evidence from the Medigap Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 303-350, April.
    12. Wang, Sen & Bogle, Tim & van Kooten, G. Cornelis, 2012. "Forestry and the New Institutional Economics," Working Papers 130818, University of Victoria, Resource Economics and Policy.
    13. Raj Chetty & Amy Finkelstein, 2012. "Social Insurance: Connecting Theory to Data," NBER Working Papers 18433, National Bureau of Economic Research, Inc.
    14. Johannes Spinnewijn, 2017. "Heterogeneity, Demand for Insurance, and Adverse Selection," American Economic Journal: Economic Policy, American Economic Association, vol. 9(1), pages 308-343, February.
    15. Hanming Fang & Zenan Wu, 2018. "Multidimensional private information, market structure, and insurance markets," RAND Journal of Economics, RAND Corporation, vol. 49(3), pages 751-787, September.
    16. Gregory S. Crawford & Nicola Pavanini & Fabiano Schivardi, 2018. "Asymmetric Information and Imperfect Competition in Lending Markets," American Economic Review, American Economic Association, vol. 108(7), pages 1659-1701, July.
    17. Martin Spindler & Joachim Winter & Steffen Hagmayer, 2014. "Asymmetric Information in the Market for Automobile Insurance: Evidence From Germany," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 81(4), pages 781-801, December.
    18. Peilu Zhang & Marco A. Palma, 2021. "Compulsory Versus Voluntary Insurance: An Online Experiment," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(1), pages 106-125, January.
    19. Patricia H. Born & E. Tice Sirmans, 2020. "Restrictive Rating and Adverse Selection in Health Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 87(4), pages 919-933, December.
    20. Pierre-André Chiappori & Bernard Salanié, 2002. "Testing Contract Theory : A Survey of Some Recent Work," Working Papers 2002-11, Center for Research in Economics and Statistics.
    21. Casey Rothschild & Paul D. Thistle, 2022. "Supply, demand, and selection in insurance markets: Theory and applications in pictures," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 25(4), pages 419-444, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jlands:v:10:y:2021:i:8:p:837-:d:612063. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.