Contract Design in China's Rural Land Rental Market: Contractual Flexibility and Rental Payment

68 Pages Posted: 1 Nov 2016 Last revised: 12 Aug 2020

Date Written: July 30, 2018

Abstract

I study bargaining over contract arrangements—contractual flexibility and rental payments—that profoundly affects the ex-post surplus of China’s rural land rentals in the context of urban–rural separation. My theory suggests which equations should be estimated to test bargaining over multiple contractual terms. My theoretically justified empirical structure differs from conventional models and helps to explain seemingly inconsistent empirical results reported in the literature. Using transactional data collected by a new transaction-oriented sampling strategy, I draw two conclusions while also supporting my characterization of the bargaining mechanism. First, compared with renting-in partners, renting-out agents respond more strongly to non-agricultural employment uncertainty induced by urban–rural separation, which increases contractual flexibility. Second, social proximity helps non-stranger entrepreneurs obtain low-flexibility contracts without fully compensating renting-out agents, suggesting that urban–rural separation erects a social barrier to strangers that village trust lowers because social proximity and contractual flexibility are substitutes only in low-trusting environments.

Keywords: Land rentals, Rental contractual arrangements, Contractual flexibility, Chinese rural economy

JEL Classification: O13, Q15

Suggested Citation

Yang, Ziyan, Contract Design in China's Rural Land Rental Market: Contractual Flexibility and Rental Payment (July 30, 2018). Journal of Economic Behavior and Organization, Vol. 178, No. 10, 2020, 15-34, Available at SSRN: https://ssrn.com/abstract=2862052 or http://dx.doi.org/10.2139/ssrn.2862052

Ziyan Yang (Contact Author)

Xiamen University ( email )

NO.422 South Siming road
Xiamen, MD Fujian 361005
China

HOME PAGE: http://zyang33.weebly.com/

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