Measuring transaction costs in China’s rural land rental market: Ex-ante bargaining associated with ex-post contract-violation uncertainty and location specificity

Ziyan Yang

Journal of Economic Behavior & Organization, 2024, vol. 224, issue C, 688-716

Abstract: I measure the monetary value of ex-ante bargaining costs associated with China’s rural land rental market, confirming the previously unverified existence of transaction costs in this market. I demonstrate that the ex-ante bargaining costs associated with contractual formality represent the main transaction costs that hinder market progress. In a three-step theory, I model the process through which transaction costs are generated. First, uncertainty regarding ex-post contract violations caused by non-agricultural income shocks and location specificity in China’s fragmented farmland results in conflicting partner preferences. Second, the compromise mechanism that facilitates efficient bargaining makes the agent facing lower compromise costs in a transaction more likely to compromise. Third, ex-ante bargaining costs are generated in inefficient bargaining when theoretically predicted agents refuse to compromise. Using a subsample of data introduced in Yang (2020), I find that ex-ante bargaining costs are 126.5 RMB and 35.4 RMB per mu per year, respectively, for renting-out agents and renting-in agents who refuse to compromise in contract negotiations.

Keywords: Transaction costs; Rural land rental market; Ex-ante bargaining; Ex-post adaptation (search for similar items in EconPapers)
JEL-codes: D23 O13 Q15 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0167268124002403
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:224:y:2024:i:c:p:688-716

DOI: 10.1016/j.jebo.2024.06.022

Access Statistics for this article

Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

More articles in Journal of Economic Behavior & Organization from Elsevier
Bibliographic data for series maintained by Catherine Liu ().