Rural Property Rights, Returns to Scale and Contracts

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This proposal falls under the Agriculture theme.Our research entails two projects that examine the impact of rural land rights on the decisions and outcomes of farmers in China. In the first project, we are interested in how giving farmers the legal right to lease their land may affect their ability to improve their outcomes. There are two particular ways through which we think that individuals' decisions may be changed by the introduction of leasing rights in a context where farmers previously only had use rights and could not legally engage in any market land transaction such as selling or renting. First, leasing rights may allow farmers to adjust and optimize the size of their land-holdings by renting in or renting out land. Second, the ability to lease out land may allow farmers to leverage the value of their property without working the land themselves. In this way, land leasing rights may alleviate constraints on labor mobility and allow some farmers to migrate to urban areas to pursue different labor market opportunities. We combine economic theory and detailed micro-level data to analyze this question. This research agenda can have potentially important implications for agricultural productivity and the flow of labor towards new economic opportunities both in China and in many other developing countries where institutions that enable private property rights are underdeveloped. In the second project, we are interested in thinking about the determinants of the types and the terms of the contracts that farmers sign when allowing other farmers or agricultural firms to use their land. After understanding the choices made by farmers regarding land contracts, we will analyze the impact of these contract choices on agricultural investment and productivity. This research agenda builds on economic theories that suggest that some types of contracts may lead to lower investment and lower levels of productivity. For example, farmers may enter into contracts that reduce their incentives to make profitable investments in the land in order to obtain insurance against negative shocks. This analysis makes use of a land reform that occurred in some areas of rural China where farmers were allowed to use their land as capital investment to enter into profit-sharing contracts with large-scale agricultural firms. Because our research project has a novel focus on contracts with both agricultural firms and with other individuals, we will collect a new data set that includes detailed information from both farmers and agricultural firms on their agricultural investments and outputs as well as on the contracts between these parties. This research will provide valuable insight into how land market interactions among farmers and between farmers and agricultural firms affect rural economic growth. In addition, the results of this project can also provide policy-relevant implications for process of economic transition associated with the rise of large-scale agricultural farming.