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Price Signal of Tilled Land in Rural China: An Empirically Oriented Transaction Costs Study Based on Contract Theory

Author

Listed:
  • Chao Hu

    (College of Economics and Management, Huazhong Agricultural University, Wuhan 430070, China)

  • Jianping Tao

    (College of Economics and Management, Huazhong Agricultural University, Wuhan 430070, China)

  • Donghao Zhang

    (School of Insurance, Southwestern University of Finance and Economics, Chengdu 611130, China)

  • Damian Adams

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

Abstract

Prices are effective signals of many market conditions, while underpricing of tilled land in rural China poses a dilemma to this common sense. Using n = 191 imputed contracts in rural China, this paper aims to investigate the role of ambiguous property rights in the context of agricultural reforms. Using rank statistics, several candidate variables in the transaction costs function f c (•) were identified, including BMI (Body Mass Index), Knowledge, Subtraction and Farming Experience. The results show clear evidence for underpricing to restrain competition under ambiguous property rights. More illuminatingly, non-parametric regression analysis specifies a well-founded transaction costs function: increasing Subtraction by one unit increases transaction costs by the equivalent of US$513.40, while a one-year increase of farming experience reduces transaction costs by US$116.20, ceteris paribus. It concludes that social costs behind underpricing are detrimental to China’s rural reform. This study contributes to economic theory, with important implications for policy makers. To encourage smooth transmission of price signals, it is important to consider farmer characteristics and develop professional farmers.

Suggested Citation

  • 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.
    • Handle: RePEc:gam:jlands:v:10:y:2021:i:8:p:837-:d:612063
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    4. 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.

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