The Strangers in the Acquaintance Networks: Whether Lower Land Rent Exists in the Informal Rental Transactions or Not?

Abstract

Traditionally, rental transactions between acquaintances have been regarded as informal, and associated with low rents. This view implies market segmentation and the malfunctioning of prices. Our study uses household-level data from the China Household Finance Survey (CHFS) in 2015 to assess the relationship between transaction partners and land rents, with consideration of the mediating effect of profit motivations. The results indicate that among villagers who lease land for profit, there is no average difference in land rents between transactions conducted between acquaintances and those conducted between strangers. We also find that profit motivation positively affects land rents. If lessees rent land for the sake of profit, higher land rents are paid no matter who they transact with. Lower land rents are more likely to apply in transactions between acquaintances or transactions conducted for non-profit motivation. Furthermore, we find that more than 52.5% of rental transactions between acquaintances in rural China are done for the sake of profit. Our analysis implies that a large number of formal land rental transactions take place within acquaintance networks, and that land rents in rural markets are converging.