Market versus administrative reallocation of agricultural land in a period of rapid industrialization

Under communal farm production, there was little incentive to work hard: the communal system guaranteed a livelihood, and there were few private gains from additional efforts. The reform that introduced the household responsibility system in China in the early 1980s sharpened individual work incentives by assigning specific plots and the rights to residual income to individual households. However, the household responsibility system left unresolved questions about the reallocation of land over time - questions that have become increasingly important (for both efficiency and equity) with the rapid growth of the non-farm economy. The authors use household and village data to show that the initially egalitarian distribution of land is becoming more dispersed over time. In what has become a hybrid property rights system, in some areas local village leaders (the cadre) were empowered to periodically redistribute land between households on the basis of economic and demographic changes among households. In other villages, households were granted much greater immunity against redistribution of any sort. Similarly, villages differed in the degree to which individual households could trade land among themselves. Some villages did not regulate the practice, and other required village approval or prohibited land rental relationships. The authors use simulated maximum likelihood methods to estimate hybrid panel models of the determinants of both market-based and administrative reallocation of land. They also use them to estimate the insecurity-induced investment costs of market-based reallocation of land. They find that administrative reallocation responds to the increasing inequality but non-market reallocations come at a significant cost in forgone investment.