Organizer: Scott Rozelle, Stanford University
Chair: Robert Dernberger, University of Michigan
Discussant: G. William Skinner, University of California, Davis
Emerging Markets for Land: Tenure Relations, Rental Transactions, and the
Management of Rural China's Scarcest Factor
Loren Brandt, University of Toronto
The introduction of the household responsibility system (HRS) in the early 1980s radically restructured property rights in rural China and altered the relationship between the state, the collective, and farm households. While the HRS uniformly individualized residual income rights throughout China, localities had considerable leeway in the exact package of property rights extended to households.
Property rights in agricultural land are multi-dimensional. In addition to residual income rights, these rights include the farmers use rights, the rights to transfer, and security of possession. Over time, heterogeneity in rural China in land rights has grown as systems of property rights have undergone local evolution and become increasingly complex. Because of the effect of property rights on farmers' incentives and agricultural growth, the forces underlying this evolutionary process and the diversity in property rights regimes have become extremely important in current debates over agricultural policy.
Drawing on survey data from over 200 villages sampled from throughout China, the purpose of this paper is three-fold: (a) to catalogue and describe the nature of the differences in property rights in land across villages in China; (b) to develop a heuristic model of local property rights formation; and (c) to provide empirical support for our explanation for the differences we observe across localities in China. Central to our analysis will be the view that in each locality property rights are set in such a way as to try to reconcile the interests of three key constituencies: the individual farm household; the local community; and the national government. The differences we observe in property rights regimes, in turn, can be linked to the differences in the intensity of the interests of these three constituencies across localities. In our empirical work, these interests will be proxied by a number of variables that come from information that has been obtained in intensive surveys with all of the actors involved.
Increasing Periodicity, Rising Density, and the Expansion of Rural Markets in
Jikun Huang, Chinese Academy of Agricultural Sciences
One of the most provocative social science pieces in the modern era is one written by William Skinner. Skinner's work on preliberation and prereform China explored the formation and evolution of rural periodic markets. Striking patterns of geographic symmetry and economic efficiency were found to underlie the age-old institutions of exchange upon which rural China's cadres of merchant, peasants, magistrates, and gentry depended for their prosperity and livelihood. The discovery of these institutional peculiarities created great interest in the study of historic and current patterns of market periodicity.
The goal of this paper is to both enrich and extend the work on rural periodic markets. Based on observations of more than 500 periodic markets in more than 50 counties in every major region of China, the study will document the reemergence and rejuvenation of periodic markets in reforming rural China. The article seeks to test the hypothesis that markets appear to reduce the transaction costs of its users. Markets become more dense and more specialized as the economic development process unfolds. Once the optimal degree of density is reached, markets become more frequent and each session increases in duration. Rural market development will also be shown to provide the goods, services, and marketing outlets needed by rural producers and consumers as they become wealthier and more specialized.
Doing Business in a Legal Desert: The Role of Reputation in Enforcing Contracts
Between Township and Village Enterprises and Their Suppliers and Buyers
Minggao Shen, Stanford University
One of the greatest puzzles confronting development economists is how township and village enterprises could grow so fast despite the lack of an effective legal system, an element which is often believed necessary to support efficient business transactions. This paper will attempt to solve part of this puzzle by examining how exchange has been able to occur between rural enterprises and their supplies and buyers despite the absence of a legal system. The work will focus on two markets, the market for managers and the market for factors of production.
In looking at the market for managers, the article will focus on the evolution of form of contract between local leaders (who ultimately control the firm) and managers (who are charged with the operation of the firm). Without legally-binding employment contracts or formal collective bargaining arrangements, it is shown that when firms become more complex in China's rural areas leaders devise contracts that both give incentives for managers to run the firms efficiently and which are self-monitoring. Moreover, developing markets will also induce a search for more efficient contracts between leaders and managers; with well-functioning markets, leaders can afford to become less involved in the firm (their external connections not needed as much), and will have an incentive to offer long-run, lump-sum lease arrangements to managers, a contractual form which does not need to be monitored since residual profits go to the manager.
The paper also documents how these leaders and/or managers interface with their supplies and buyers without legally enforceable contracts. It is shown that without well-developed markets, firms either contract with those who they know or with whom they have previously conducted business; reputation and the fear of losing a good reputation play a key role in enforcing business deals. Without markets and without a good reputation, firms are hamstrung in their efforts to expand business and grow. Hence, it is found in the early states of the take-off of China's TVE sector that reputation acted as a substitute for missing markets. But such a mechanism itself is cumbersome and with rapid growth there was a lot of pressure to find more efficient means of ensuring supplies of factors and outlets for goods. In response to this pressure, the paper documents the institutional innovations that arise. Deep spot markets, which have abundant supplies of materials and services but do not require complex written contracts arise. As these markets expand, third party firms-sometimes banks or other informal intermediaries-have emerged to play a role of financier or market makers. Moreover, it is shown that when such institutions are successful in emerging, the scope and reach of business transactions can far exceed the levels when they were based on reputation and only enforceable by friendship ties.
The Battle for Surplus Grain and Scarce Fertilizer: Private Trading, the
Commercialization of State Trade, and Marketing Patterns in Rural China
Li Guo, Stanford University
In recent work by several economists, grain and fertilizer markets in China have been shown to be increasing in the degree of integration, competitiveness and efficiency. This work, however, is based on secondary price data and has no micro-economic basis. The mechanisms of increasing integration and market development are not discussed.
Based on field interviews with local leaders, traders, commercialized officials, and farmers in over 200 villages in rural China, this paper seeks to document and explain the revolution occurring in rural grain and fertilizer markets. In the first part of the paper, the changing channels of fertilizer purchasing and grain sales are documented. The results will show sharp structural changes in rural marketing patterns. These marketing changes are the result of institutional changes indicated by the emergence of a class of traders and grain merchants. Initially, the state monopolized rural market procurement and sales of key goods and factors. Private traders began to outcompete grain officials in some markets in their quests for procuring marketed surplus. Commercialized firms, run by individuals who had previously been in the rural commerce bureaucracy, fought to keep their markets by competing with private traders on free markets. Market liberalization policies deregulated the grain system, and thousands of new trading firms appeared. These changes can be followed by examining the channels through which farmers buy their fertilizer and market their output.
This paper will go forth, however, and try to link the expansion of markets to the characteristics of the villages and regional economies in which the markets are emerging. The paper will explain why farmers in some areas enjoy competitive markets, and why others still must deal with a powerful state procurement apparatus which has monopolistic-like power. The policy lessons from such work should be useful to reformers who are interested in increasing the welfare of those who still do not enjoy being in a region with competitive and official markets.