Induced Institutional Change or Transaction Costs? The Economic Logic of Land Reallocations in Chinese Agriculture

The communal land rights system in China, which combines individualised farming with periodic land reallocations, provides a good case for testing the economic logic of land reallocations. Analysis of the results of a unique village survey reveals that a village's choice of land reallocation type - partial or large in scale - is significantly affected by transaction cost considerations, which vary according to village topography and size, rather than concerns for economic efficiency (tenure security), the latter of which is a proxy for the theory of induced institutional change. More specifically, villages with complex topographies tend to favour partial land reallocation, whereas larger settlements tend to reallocate land more thoroughly.