A theorem on dynamic disequilibrium: Debunking path dependence and equilibrium via China’s urban property (1949–1998)

Neo-institutionalism has had a lasting influence on the study of property rights, with particular reference to real estate (i.e. land and housing). In this regard, two concepts need mentioning: equilibrium and path dependence. The former posits that institutions, such as a cadaster or private ownership, are the balanced outcome of actors’ interactions. The latter hypothesizes that institutions can become historically “locked into” structures of economic inefficiency, such as in the case of informal tenure and sharecropping. This paper questions these notions, and in contrast, proposes a Theorem on Dynamic Disequilibrium. Put differently, it conceptualizes institutional change as an endogenous, ever-changing and conflicting process in which no stable status is reached, yet, by which the rate of change differs. The paper employs detailed economic- and legal-historical analysis of Chinese urban real estate covering close to 50 years. It is shown that the current lay-out of China’s land and housing ownership was shaped by actors’ endless conflict and bargaining. This evolutionary process culminated in a constitutional debate on nationalizing all land; rural and urban. Markedly, 33 years after Mao took control the competent state agency still advocated acknowledging private land ownership in the cities. An important issue featuring in this debate is ex-ownership. Against the background of China’s renewed efforts to establish a national cadaster, the paper’s findings imply that titling and privatization might run into problems, lest role and function that institutional changes have played in history are accounted for