Game Behavior Analysis between the Local Government and Land-Lost Peasants in the Urbanization Process

China is entering a period of rapid urban development. With the rapid expansion of cities, a large number of peasants have lost their land as a result. Given the development of urbanization, safeguarding the rights and interests of land-lost peasants in the process of urbanization has become a new topic of interest in China. In this study, based on game theory, we analyze the interests of the local government and land-lost peasants in several rounds of the citizenization process. The result demonstrated the following: (1) this paper proposed that overall interest declines in the entire game, in which the peasant can obtain a greater share of benefits from bargaining with the local government; (2) However, a long bargaining process would lead to the diminishment of peasants’ rights and benefits. In contrast, the local government would obtain greater share of benefits than the peasant and would obtain fewer benefits than at the beginning of the process. Therefore, both sides expect to end the game process early; (3) Under the “rational economic man” process, this process will always tend to be one in which one party struggles while the other compromises. Therefore, in the game, the game process will not reach a game equilibrium state and both sides will be at a stalemate; (4) The local government, as the power owner, is expected to surrender its interests as the “rational economic man” for the Pareto optimality; (5) Finally, we proposed policy recommendations for the sustainability of citizenization. Increasing the public service benefits, establishing the system of subsistence allowances and raising the minimum living allowance of citizenization, improving the training and employment service system for the peasant can improve land-lost peasants’ acceptance in the game.