Land Rental Markets as an Alternative to Government Reallocation? Equity and Efficiency Considerations in the Chinese Land Tenure system

The authors develop a model of land
leasing with agents characterized by unobserved
heterogeneity in ability and presence of an off-farm labor
market. In this case, decentralized land rental may
contribute to equity and efficiency goals and may have
several advantages over administrative reallocation. The
extent to which this is true empirically is explored using
data from three of China's poorest provinces. The
authors find that both processes redistribute land to those
with lower endowments but that land rental markets are more
effective in doing so and also have a larger
productivity-enhancing effect than administrative
reallocation, implying that more active land rental markets
would allow producers to realize significant productivity
gains. At the same time, the presence of a large number of
producers whose participation in rental markets remains
constrained suggests that efforts to reduce transaction
costs in land rental markets would be warranted.