IDEAS home Printed from https://ideas.repec.org/a/gam/jlands/v12y2023i2p278-d1040165.html
   My bibliography  Save this article

Refining the Rent Dissipation Model in Land Use: Application to Agricultural Insurance in China

Author

Listed:
  • Chao Hu

    (School of Economics and Finance, Guizhou University of Commerce, Guiyang 550014, China)

  • Damian C. Adams

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

  • Huachao Feng

    (School of Political Science and Law, Zhengzhou University of Light Industry, Zhengzhou 450002, China)

  • Jing Cheng

    (School of Humanities and Social Science, Jiangsu University of Science and Technology, Zhenjiang 212100, China)

Abstract

Despite apparent efficiency concerns, the use of agricultural insurance as a policy tool has surged in rural China. Its use offers a natural experiment to assess both economic theory of property rights and agricultural policy effectiveness, and to revisit the rent dissipation model that was originally developed to explain the role of property rights in unsustainable fisheries harvest decisions. We focus on evidence of resource overpricing behavior in the context of subsidized agricultural insurance, including evidence of a theoretically-expected increasing rent pattern. Our results reinforce the importance of transactions costs as a driver of economic inefficiency and highlight the role of social costs as an important factor to explicitly consider when designing agricultural policy. In particular, when employing the formal policy mechanism of rural agricultural insurance, we suggest that informal risk-bearing arrangements can be leveraged to reduce social costs behind apparent overpricing behavior and increase land users’ welfare consistent with intended policy goals.

Suggested Citation

  • 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.
    • Handle: RePEc:gam:jlands:v:12:y:2023:i:2:p:278-:d:1040165
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2073-445X/12/2/278/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2073-445X/12/2/278/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Heidi L. Williams, 2013. "Intellectual Property Rights and Innovation: Evidence from the Human Genome," Journal of Political Economy, University of Chicago Press, vol. 121(1), pages 1-27.
    2. James J. Heckman & Edward Vytlacil, 2005. "Structural Equations, Treatment Effects, and Econometric Policy Evaluation," Econometrica, Econometric Society, vol. 73(3), pages 669-738, May.
    3. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1, March.
    4. H. Scott Gordon, 1954. "The Economic Theory of a Common-Property Resource: The Fishery," Journal of Political Economy, University of Chicago Press, vol. 62(2), pages 124-124.
    5. Maryam Farboodi & Gregor Jarosch & Guido Menzio, 2016. "Intermediation as Rent Extraction," PIER Working Paper Archive 16-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Dec 2016.
    6. Bhaven Sampat & Heidi L. Williams, 2019. "How Do Patents Affect Follow-On Innovation? Evidence from the Human Genome," American Economic Review, American Economic Association, vol. 109(1), pages 203-236, January.
    7. Joseph E. Stiglitz, 1974. "Incentives and Risk Sharing in Sharecropping," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(2), pages 219-255.
    8. Fudenberg, Drew & Tirole, Jean, 1987. "Understanding Rent Dissipation: On the Use of Game Theory in Industrial Organization," American Economic Review, American Economic Association, vol. 77(2), pages 176-183, May.
    9. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6, National Bureau of Economic Research, Inc.
    10. Allen, Douglas W & Lueck, Dean, 1998. "The Nature of the Farm," Journal of Law and Economics, University of Chicago Press, vol. 41(2), pages 343-386, October.
    11. Homans, Frances R. & Wilen, James E., 2005. "Markets and rent dissipation in regulated open access fisheries," Journal of Environmental Economics and Management, Elsevier, vol. 49(2), pages 381-404, March.
    12. H. Scott Gordon, 1954. "The Economic Theory of a Common-Property Resource: The Fishery," Palgrave Macmillan Books, in: Chennat Gopalakrishnan (ed.), Classic Papers in Natural Resource Economics, chapter 9, pages 178-203, Palgrave Macmillan.
    13. 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.
    14. Walker, James M. & Gardner, Roy & Ostrom, Elinor, 1990. "Rent dissipation in a limited-access common-pool resource: Experimental evidence," Journal of Environmental Economics and Management, Elsevier, vol. 19(3), pages 203-211, November.
    15. 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.
    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. Weijia Wang & Wen Wang & Kun Wang & Yanyun Zhao & Ran Yu, 2023. "Remote Sensing Application in Pure Premium Rate-Making of Winter Wheat Crop Insurance," Sustainability, MDPI, vol. 15(9), pages 1-15, April.

    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. Tarui, Nori & Mason, Charles F. & Polasky, Stephen & Ellis, Greg, 2008. "Cooperation in the commons with unobservable actions," Journal of Environmental Economics and Management, Elsevier, vol. 55(1), pages 37-51, January.
    2. Christensen, Bent Jesper & Parra-Alvarez, Juan Carlos & Serrano, Rafael, 2021. "Optimal control of investment, premium and deductible for a non-life insurance company," Insurance: Mathematics and Economics, Elsevier, vol. 101(PB), pages 384-405.
    3. Ashok Chakravarti, 2012. "Institutions, Economic Performance and the Visible Hand," Books, Edward Elgar Publishing, number 14751, March.
    4. Kimbrough, Erik O. & Vostroknutov, Alexander, 2015. "The social and ecological determinants of common pool resource sustainability," Journal of Environmental Economics and Management, Elsevier, vol. 72(C), pages 38-53.
    5. Fischer, Maria-Elisabeth & Irlenbusch, Bernd & Sadrieh, Abdolkarim, 2004. "An intergenerational common pool resource experiment," Journal of Environmental Economics and Management, Elsevier, vol. 48(2), pages 811-836, September.
    6. Rampini, Adriano A. & Viswanathan, S., 2018. "Financing Insurance," CEPR Discussion Papers 12855, C.E.P.R. Discussion Papers.
    7. Schnier, Kurt Erik, 2009. "Spatial externalities and the common-pool resource mechanism," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 402-415, May.
    8. David M. McEvoy & Sylvia Brandt & Sven Anders, 2009. "The Effects of ITQ Management on Fishermen’s Welfare When the Processing Sector Is Imperfectly Competitive," Land Economics, University of Wisconsin Press, vol. 85(3), pages 470-484.
    9. Schnier, Kurt E. & Anderson, Christopher M., 2006. "Decision making in patchy resource environments: Spatial misperception of bioeconomic models," Journal of Economic Behavior & Organization, Elsevier, vol. 61(2), pages 234-254, October.
    10. Nicolas Querou, 2018. "Interacting collective action problems in the commons," Working Papers halshs-01936007, HAL.
    11. Wilen, James E., 2000. "Renewable Resource Economists and Policy: What Differences Have We Made?," Journal of Environmental Economics and Management, Elsevier, vol. 39(3), pages 306-327, May.
    12. Raja R Timilsina & Yutaka Kobayashi & Koji Kotani, 2022. "Non-kinship successors for resource sustainability," Working Papers SDES-2022-2, Kochi University of Technology, School of Economics and Management, revised Jan 2022.
    13. Colin Rowat & Jayasri Dutta, 2007. "The Commons with Capital Markets," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 31(2), pages 225-254, May.
    14. Colin Rowat & Jayasri Dutta, 2004. "The road to extinction: commons with capital markets," Econometric Society 2004 North American Summer Meetings 145, Econometric Society.
    15. Casari, Marco & Plott, Charles R., 2003. "Decentralized management of common property resources: experiments with a centuries-old institution," Journal of Economic Behavior & Organization, Elsevier, vol. 51(2), pages 217-247, June.
    16. Marco Casari, 2004. "Can Genetic Algorithms Explain Experimental Anomalies?," Computational Economics, Springer;Society for Computational Economics, vol. 24(3), pages 257-275, March.
    17. Koundouri, Phoebe & Laukkanen, Marita, 2004. "Stochastic Production in a Regulated Fishery:The Importance of Risk Considerations," MPRA Paper 41912, University Library of Munich, Germany.
    18. Erling Moxnes, 1998. "Not Only the Tragedy of the Commons: Misperceptions of Bioeconomics," Management Science, INFORMS, vol. 44(9), pages 1234-1248, September.
    19. Koffi Serge William Yao, 2021. "An Experiment on Cooperation in a CPR Game with a Disapproval Option," Games, MDPI, vol. 12(4), pages 1-14, October.
    20. S. Viswanathan & Adriano Rampini, 2013. "Household risk management," 2013 Meeting Papers 647, Society for Economic Dynamics.

    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:12:y:2023:i:2:p:278-:d:1040165. 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.