Household risk preferences and forestland use right transactions in China: tenure security or price illusion?

Abstract

ABSTRACT Forestland use right transactions (FURT) are mechanisms developed by China’s central government to cope with the problem of fragmented forestlands stemming from Collective Forest Tenure Reform (CFTR). We hypothesize that the rate of FURT remains surprisingly low after the CFTR because of households’ decision-making behavior, which depends on individual attitudes toward risks and benefits, namely risk preference. Game experiments were used to measure individual risk preferences in 301 rural households in Fujian Province, China. The results show that risk and loss averse households are less willing to participate in FURT, whether for renting-in or renting-out forestlands. When it comes to FURT contract choice, risk and loss averse households prefer to choose informal oral agreements with relatives and friends for short-term, relatively low, one-off payments. Our results also indicate that perceptions of secure forestland tenure could promote household’s renting-in of forestlands and weaken the negative impact of household risk preference. Meanwhile, risk and loss averse sellers generally give relative high price evaluations on their forestlands, which inhibits their possibilities to successfully rent-out. This study contributes to a better understanding of the relationship between household risk preference and FURT decisions, and will help inform the design of alternative policies that could promote FURT in China.