Satisfaction principle or efficiency principle? Decision-making behavior of peasant households in China’s rural land market

Lei Feng, Minghui Zhang, Yixin Li and Yan Jiang

Land Use Policy, 2020, vol. 99, issue C

Abstract: Transaction prices often deviate from the market price in rural land markets. This has been attributed to the decision process being driven by satisficing behaviors. Owing to bounded rationality, individuals tend to adopt the satisfaction principle (searching for a satisfactory solution) rather than the efficiency principle (striving to maximization) when making decisions. Accordingly, we have developed a conceptual framework to explore how decision principles cause decision biases in China’s rural land market and their driving factors. Drawing on unique survey data from 31 Chinese provinces in 2018, we employ regression models to test the theoretical hypotheses. Empirical verifications reveal the following: i) The cause of decision bias, such as non-market prices, is farmers’ adopting the satisfaction principle to make decisions. ii) Economic development, market maturity, and land registration can help reduce transaction costs, thereby reducing decision bias. iii) Given that experienced farmers are more likely to adopt the efficiency principle, their experience can help partly reduce decision biases in the rural land market. Thus, for the purpose of avoiding these anomalies in the market, policies to promote market participation and conduct land certifications should be implemented according to local economic conditions. Additionally, farmers need more opportunities to learn about the market and transactions.

Keywords: Efficiency principle; Satisfaction principle; Decision bias; Bounded rationality; Psychological tendencies; Rural land market (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:lauspo:v:99:y:2020:i:c:s0264837719323506

DOI: 10.1016/j.landusepol.2020.104943

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