Source: Dissertation Abstracts International, Volume: 75-09(E), Section: A.

Adviser: Mark Rosenzweig.

Land is fundamental to the lives of rural households. My dissertation studies villagers' collective choice of land institutions under communal tenure. Although most economists consider private property essential for economic development, communal tenure, where a group collectively owns land and frequently redistributes use rights between members, continues to exist in many developing countries. This dissertation provides a rationale for why certain communities might prefer such tenure arrangements.

I focus on rural China, where elected village governments design local reallocation policies. I build a two-period game theoretic model, assuming the existence of off-farm labor markets but the absence of agricultural labor and land markets. Households are given land at the beginning of the first period, but a welfare-maximizing social planner may choose to reallocate all landholdings between the first and second periods. Households, which differ in off-farm productivity, simultaneously decide how to allocate labor between agricultural and off-farm activities in each period. The model makes three primary predictions: First, in the absence of agricultural labor and land markets, land distribution across households affects both income distribution and agricultural efficiency in the village. With incomplete information on households' off-farm productivity, the social planner has an incentive, if he decides to reallocate, to allocate more land to households with higher lagged agricultural labor. Second, villages with lower administrative costs and higher cross-household variance in demographic change reallocate more often. Finally, the labor-contingent rule of allocation leads households to oversupply labor to agriculture. Reallocations therefore have two counter-balancing effects: they reduce production inefficiencies due to imperfect markets and income inequality on the one hand, but create labor inefficiency on the other. Social planners can design policies in which the benefits of reallocations outweigh the costs if credible commitment mechanisms exist.

I test the model using China's National Fixed-Point Survey and the Village Democracy Survey. I first test the three major hypotheses of the model one by one. To examine how villages allocate land, I regress a household's change in landholding between two consecutive major reallocations on its change in lagged percentage of labor in agriculture over the same period. Estimates show that a one standard deviation increase in lagged percentage of agricultural labor increases the land allocated to a household by 0.05 standard deviations. The frequency of reallocations is determined by the rate of demographic shifts: a one standard deviation increase in a village's standard deviation in households' annual population percentage change raises the probability of reallocation by 13%.

Finally, I test the causal effects of land reallocations. To solve the problem of endogenous property institutions, I rely on a legal reform in 2003 that stopped land reallocations in all villages. I adopt a difference-in-difference strategy to examine how changes in outcomes due to the reform differ across villages with different pre-reform reallocation tendencies. On average, the elimination of land reallocations increased off-farm labor and household per capita net income by 8% and 7% respectively. However, this came at the cost of an around 5% decrease in total agricultural output and a significant jump in income inequality. My results imply, therefore, that agricultural land and labor markets are imperfect in rural China. Reforms that try to stop land reallocations should be accompanied by efforts to develop markets and establish alternative social insurance mechanisms for villagers.

A major obstacle to welfare-maximizing land reallocations is that the individual preferences of the villagers and the village leaders are heavily influenced by their own short-term gain or loss of land in a reallocation. To test whether electoral pressure or leaders' self-interests influence land reallocation policies, I examine how the introduction of democratic elections in China in the late 1980s affected the frequency and timing of land reallocations, and also the reallocations' responsiveness to electoral preferences. Controlling for both year and village fixed effects, I find that the introduction of democratic elections has no significant effect on the frequency of reallocations in a village. In addition, the timing of reallocations does not correlate closely with either the percentage of potential land gainers in the village, or the percentage of potential gainers among households with village officials. Factors that change village leaders' accountability towards villagers, such as the competitiveness of the previous election and the time to the next election, also do not significantly change these correlations. Altogether, the results indicate that the political incentives and self-interests of village leaders do not have strong effects on villages' choice of land reallocation policy.