Performance Environment, Contract Binding, and the Contract Structure of the Farmland Transfer Market

Abstract

This study discusses the mechanism of social trust and legal institutions and their impact on farmers’ contract selection in the farmland transfer market from the perspective of contract governance. Using data from a survey of 128 villages in Heilongjiang, Henan, Zhejiang, and Sichuan provinces, this study empirically tests the impact of social trust and legal institutions on the binding force of contracts, and the proportions of paper and long-term contracts in the farmland transfer market. The results showcase, first, that improvement in social trust and legal institutions can strengthen the binding force of farmland contracts. The strength of legal institutions, as embodied in regulation files and execution, and of social trust, as embodied in village neighborhood relations and loan relations, have significant positive impacts on the binding force of contracts in the farmland transfer market. Second, the binding force of contracts positively impacts both paper and long-term contracts in the farmland transfer market. Whether contract execution or dispute resolution rates are selected as the proxy variables for the binding force of contracts, the stronger the contract binding force, the higher the proportion of both paper and long-term contracts in the farmland transfer market. Therefore, improving formal and informal social systems to enhance contractual binding force is of great importance in standardizing contracts and improving the efficiency of market resource allocation.