Local governments as land monopolists in Chinese cities: a natural experiment of Coase Conjecture in urban land

Coase’ famous paper on durability and monopoly starts with an example of a land monopolist, who turns out to be difficult to find in the real world. The Chinese constitution stipulates that all urban land is owned by the government, thus making Chinese cities a natural experiment for the Coase Conjecture on land monopoly. This paper uses land-leasing data in 290 prefecture-level cities in China to test the existence of strategic behaviors in local governments as land monopolists. The estimation shows with both a simple linear regression model and a random trend model that, after controlling for city size, urban growth and income, land prices decline over time. We also found that the results for land price through negotiation and that through tender, auction and listing (TAL) are very different. This suggests that the local government’s monopoly power in the market of industrial land, which are mostly sold through negotiation, is much weaker than in the market of residential and commercial land, which are mostly sold through TAL. In conclusion, this paper supports the argument that urban land is a special type of durable goods and urban land monopolists act strategically.