Land and labor allocation under communal tenure: Theory and evidence from China

This paper studies rural communities' land and labor choices under communal tenure. I develop a theoretical framework to explain why rural communities often adopt practices of labor-contingent land access and frequent land reallocations under communal tenure, and argue that, although these practices reduce cross-household income inequality and improve agricultural production efficiency under imperfect markets, they can nonetheless inefficiently trap labor in agriculture. I rely on a legal reform in 2003 that stopped land reallocations in all Chinese villages and exploit the variation in villages’ reallocation practices before the reform to test the model predictions. The results suggest that the elimination of land reallocations increased off-farm labor and household per capita net income by 7% and 6.5% respectively. However, this came at the cost of a 6% reduction in total agricultural output and a significant jump in intra-village income inequality.