Title：Smoothing Ex-Post Adaptation Costs by Ex-Ante Bargaining: The Prevalence of Informal Rural Land Rental Contracts in China

Speaker: Ziyan Yang (Xiamen University)

Time：13:30 – 15:00 (Beijing Time, GMT +8)

Venue：Room 406, Zengxianzi Building, Shipai Campus, Jinan University

About the speaker：

Ziyan Yang is an assistant professor of economics at Xiamen University. She received her Ph.D. degree in Agricultural and Resource Economics from the University of Maryland, College Park. Her current research focuses on the applications of institutional economics on agricultural development, the economies of the new media, and Chinese economic history. Her research has been supported by the National Science Foundation of China. Her work has been published in journals such as Journal of Economic Behavior and Organization, Land Use Policy, China Agricultural Economic Review, and Management World.

Abstract: 

Merging and extending contract theory and transaction-cost theory, I explain the prevalence of informal rural land rental markets in China in the 2010s. My theory suggests that contractual formality is a precautionary strategy implemented to minimize ex-post adaptation costs at the expense of ex-ante bargaining costs generated from conflicting partner preferences. Using a transactional-level data that match rental partners, I empirically support my theory, which covers a three-step process through which ex-ante bargaining costs are generated. First, non-agricultural income uncertainty and location specificity result in conflicting partner preferences. Second, the compromise mechanism maximizes joint profits by making it more likely that the agent facing lower compromise costs is the one who compromises. Stranger renting-in agents are socially pressured to show good intentions, increasing the likelihood that they will compromise. Third, in a pseudo-tax-incidence framework, I measure, in monetary value, the average ex-ante bargaining costs, which I find represent 8.8% of annual rent.