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Specialization without regret - transfer rights, agricultural productivity, and investment in an industrializing economy

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  • Carter, Michael R.
  • Yang Yao

Abstract

A number of studies have examined the effects of secure tenure on agricultural investment and productivity. The authors also study the importance of rights to household residual income and land use being transferable. Contemporary China - where industrialization has spread rapidly, if unevenly - is a good place to study the economic effects of transfer rights as well as conventional security of tenure. Village collectives formally own land in China, so there can be no individual land sales, but farmers are sometimes entitled to sell their rights to use the land allocated to them under the household responsibility system. Whether a household has secure tenure depends on whether its landholding will be reduced if the household population declines, whether the landholding will be increased if the household population increases, and how frequent average land adjustments are under the household responsibility system. Analyzing panel data for a sample of farm households, the authors study the"investment regret mitigation effect", which results when greater transfer rights make households more willing to invest because they are less likely to regret such investments when they can recoup the investment value even if they exit farming. The authors find that transfer rights may be especially important in an industrializing economy. A property rights system with incomplete security of tenure but with strong transfer rights that permit"specialization without regret"- so farmers can recoup the value of an investment even if they exit farming - may have much to recommend it.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2202.

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Date of creation: 31 Oct 1999
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Handle: RePEc:wbk:wbrwps:2202

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Keywords: Economic Theory&Research; Environmental Economics&Policies; Labor Policies; Banks&Banking Reform; Municipal Financial Management; Environmental Economics&Policies; Economic Theory&Research; Banks&Banking Reform; Municipal Financial Management; Municipal Housing and Land;

References

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  1. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, Econometric Society, vol. 46(1), pages 69-85, January.
  2. Liu, Shouying & Carter, Michael R. & Yao, Yang, 1998. "Dimensions and diversity of property rights in rural China: Dilemmas on the road to further reform," World Development, Elsevier, vol. 26(10), pages 1789-1806, October.
  3. Jacoby, Hanan G. & Li, Guo & Rozelle, Scott, 2002. "Hazards Of Expropriation:Tenure Insecurity And Investment In Rural China," Working Papers 11960, University of California, Davis, Department of Agricultural and Resource Economics.
  4. Alston, Lee J & Libecap, Gary D & Schneider, Robert, 1996. "The Determinants and Impact of Property Rights: Land Titles on the Brazilian Frontier," Journal of Law, Economics and Organization, Oxford University Press, Oxford University Press, vol. 12(1), pages 25-61, April.
  5. Putterman, Louis, 1991. "Does Poor Supervisability Undermine Teamwork? Evidence from an Unexpected," American Economic Review, American Economic Association, vol. 81(4), pages 996-1001, September.
  6. Feder, Gershon, et al, 1992. "The Determinants of Farm Investment and Residential Construction in Post-Reform China," Economic Development and Cultural Change, University of Chicago Press, vol. 41(1), pages 1-26, October.
  7. Sarah Gavian & Marcel Fafchamps, 1996. "Land Tenure and Allocative Efficiency in Niger," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, Agricultural and Applied Economics Association, vol. 78(2), pages 460-471.
  8. Dong, Xiao-Yuan, 1996. "Two-tier land tenure system and sustained economic growth in post-1978 rural China," World Development, Elsevier, vol. 24(5), pages 915-928, May.
  9. McMillan, John & Whalley, John & Zhu, Lijing, 1989. "The Impact of China's Economic Reforms on Agricultural Productivity Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(4), pages 781-807, August.
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Cited by:
  1. Andreas Kontoleon & Pauline Grosjean, 2007. "How Sustainable are Sustainable Development Programs? The Case of the Sloping Land Conversion Program in China," Environmental Economy and Policy Research Working Papers, University of Cambridge, Department of Land Economics 26.2007, University of Cambridge, Department of Land Economics, revised 2007.
  2. Deininger, Klaus & Jin, Songqing, 2003. "The Impact of Property Rights on Households' Investment, Risk Coping, and Policy Preferences: Evidence from China," Economic Development and Cultural Change, University of Chicago Press, vol. 51(4), pages 851-82, July.
  3. Deininger, Klaus & Jin, Songqing, 2006. "Tenure security and land-related investment: Evidence from Ethiopia," European Economic Review, Elsevier, vol. 50(5), pages 1245-1277, July.
  4. Mullan, Katrina & Grosjean, Pauline & Kontoleon, Andreas, 2011. "Land Tenure Arrangements and Rural-Urban Migration in China," World Development, Elsevier, vol. 39(1), pages 123-133, January.

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