Land Reallocation Reform in Rural China: A Behavioral Economics Perspectivee

Abstract

Based on prospect theory, we develop a theoretical framework to unify divided views on land reallocation reform in China. Our theoretical framework and empirical verification explain the driving forces behind the success of the rural land reallocation reform in China. We find that rural land reallocation reform in China is characterized by induced and imposed institutional changes. The relationship between induced and imposed institutional change is complementary instead of competing. The decision and frequency of land reallocation are affected by both local endowment and central government policy. Empirical findings also suggest that land reallocation reform in China is progressive, with interim policy targets from different stages taking gradual effect. The progressive implementation of the “No Reallocation” policy is the reason behind the widespread, diversified land reallocation practices across the country; this policy also contributes to the success of rural land reform in China. The findings also provide valuable lessons for government-led land right formalization in other developing countries.