The impact of institutions on forestland transfer rents: The case of Zhejiang province in China

Since initiating the new round of collective forest tenure reform in China, the development of the forestland transfer market has been of considerable interest to the academic and policy communities. Our theoretical analysis posited that formal institutions-tenure certificate and written contract-are positively associated with the rents, while informal institutions, as reflected in the social relationships, can reduce transfer rents. Based on a spatial econometric model and survey data from four cities in Zhejiang, our empirical results show that in addition to the formal institutions, the informal institutions have played a key role in facilitating the transfers and determining the rents. The rent between acquaintances is lower than those between strangers. Mutual trust between acquaintances has not only alleviated farmers' dependence on tenure certificates, but also served as a guarantee for fulfilling the contractual terms. Nonetheless, China's forestland transfer market is not well developed yet. More efforts are needed to strengthen the formal institutions and improve the policy setting in facilitating farmers' participation in forestland transfers. China's experience is relevant to many developing and emerging economics.