From informality to influence: Nonlinear disturbances and institutional modulation in China's urban land supply

Shadow land markets are widespread in developing countries but remain insufficiently understood in terms of their behavioral and institutional impacts on formal land systems. Existing studies often emphasize structural constraints or macro-level distortions, overlooking how informal land activities generate institutional signals that reshape the expectations and actions of both developers and governments. Moreover, few studies have examined the nonlinear effects of shadow market expansion or how institutional mechanisms modulate these dynamics. Addressing these research gaps, this study proposes the Shadow Signal–Response–Governance (SSRG) model to explain how shadow markets function as signal systems that influence formal land prices and supply decisions. Drawing on panel data from 31 Chinese provinces (1999–2022), we identify nonlinear relationships—U-shaped for land prices and inverted U-shaped for land supply—and reveal the asymmetric moderating roles of fiscal incentives and regulatory enforcement. Fiscal dependence dampens governments' responsiveness to informal signals, while land inspections intensify demand-side perceptions of shadow market signals. These findings advance land governance theory by integrating behavioral economics and institutional modulation into the analysis of informality, offering a dynamic and policy-relevant understanding of how shadow markets affect formal land governance.