How Horizontal Integration affects Transaction Costs of Rural Collective Construction Land Market? An Empirical Analysis in Nanhai District Guangdong Province, China

High transaction costs caused by dispersed and fragmented tracts, insecure tenure and incomplete information in rural land market has become a common issue in the transition economies. Horizontal integration may economize on transaction costs but aggrandize governance inputs. Therefore trade-off between integration and governance is one of the biggest challenges in land commercialization and rural restructuring worldwide. Resorting to a field survey in Nanhai District, Guangdong Province, this work estimates how the transaction costs of rural collective construction land are influenced by the horizontal integration degree and the level of self-organization governance of collectives. Four Tobit models are constructed based on the scale of collectives and the results show that: (1) There is an almost U-shaped relationship between the horizontal integration degree of the collectives and the transaction costs. The horizontal integration among shareholders can not only centralize the fragmented land assets from individual farmers and reduce the transaction costs of rural construction land, but also result in organization costs. The transaction costs are not decreasing as the horizontal integration increases until the transaction costs saved are equal to resultant organization. (2) The more collective leaders, the higher organization costs and the more opportunism behaviors, which will give rise to the transaction costs. This suggests that the Chinese authorities should strengthen the ongoing efforts to reduce the transaction costs of market and improve the efficiency through a more transparent and accessible market and optimal scale of horizontal integration of the collective. Our work sheds some light on the mechanisms at play in the reform and innovation of rural grass-root governance and it contributes to a better understanding of land-based shareholding cooperation system and nature of ongoing rural construction land market in China and transitional economies.