Refining the Rent Dissipation Model in Land Use: Application to Agricultural Insurance in China

Chao Hu, Damian Adams, Huachao Feng and Jing Cheng
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Chao Hu: School of Economics and Finance, Guizhou University of Commerce, Guiyang 550014, China
Huachao Feng: School of Political Science and Law, Zhengzhou University of Light Industry, Zhengzhou 450002, China
Jing Cheng: School of Humanities and Social Science, Jiangsu University of Science and Technology, Zhenjiang 212100, China

Land, 2023, vol. 12, issue 2, 1-18

Abstract: Despite apparent efficiency concerns, the use of agricultural insurance as a policy tool has surged in rural China. Its use offers a natural experiment to assess both economic theory of property rights and agricultural policy effectiveness, and to revisit the rent dissipation model that was originally developed to explain the role of property rights in unsustainable fisheries harvest decisions. We focus on evidence of resource overpricing behavior in the context of subsidized agricultural insurance, including evidence of a theoretically-expected increasing rent pattern. Our results reinforce the importance of transactions costs as a driver of economic inefficiency and highlight the role of social costs as an important factor to explicitly consider when designing agricultural policy. In particular, when employing the formal policy mechanism of rural agricultural insurance, we suggest that informal risk-bearing arrangements can be leveraged to reduce social costs behind apparent overpricing behavior and increase land users’ welfare consistent with intended policy goals.

Keywords: rent dissipation model; overpricing behavior; economic rent; subsidized agricultural insurance (search for similar items in EconPapers)
JEL-codes: Q15 Q2 Q24 Q28 Q5 R14 R52 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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