Farmland lease, high-rent threat and contract instability: evidence from China

Abstract

PurposeThe purpose is to understand why contract instability occurs when small landowners lease their land to large landholders.Design/methodology/approachThe authors develop a contract theoretical model to understand the stability problem in the farmland lease contract in China, where most landowners are small landholders.FindingsResults from the doubly robust estimation method used on randomly selected interview data from 552 households in nine provinces of China indicate that contract instability can arise endogenously when large landholders sign a contract. The authors conclude that a suitable rent control regime or contract enforcement may be necessary to promote a large-scale farmland transfer in China.Originality/valueThe authors develop a contract theoretical model and apply it to the land rental market in China. Data used are original and collected from farmers located in nine provinces of China.