Secure property rights are considered an important catalyst for economic growth, the argument being that investment can only flourish when there is a reasonable chance of reaping its rewards. Today, however, insecurity of ownership remains a major issue in former socialist economies, and fear of expropriation may even impede efforts towards further reform. Yet little, if any, evidence exists on how investors respond to heightened expropriation risk, or on the social cost of insecure property rights. Given this, it is unsurprising that the nature of property rights in agricultural land and the extent to which market activities should supplant administrative authority are important topics in China's current policy debate. Without a solid empirical foundation, the land rights reform debate in China is stuck in its formative stage. Continuing calls for further land reform by those inside and outside of China's policy making circle should have made this an area of high priority policy research; instead, fundamental dimensions of the debate have yet to be fully articulated and empirical evidence on even the most rudimentary aspect of land rights is nearly non-existent. No one has ever attempted to identify the determinants of local land right regimes or explain the heterogeneity that exists even among villages within townships. Much of the focus of previous work has been on tenure security when other dimensions of the land rights, such as transfer rights, control rights, and income rights, may have equal or greater impacts on farmer behavior. Also, with only several exceptions, the costs arising from poorly defined land rights have not actually been estimated and almost no work has attempted to uncover the relationship between land rights and input use, investment, yields, or soil quality. The proposed research is to use community level data to examine the forces determining the propensity for leaders to expropriate land from farmers and to understand how these reallocations affect the utilization of village resources, the equity of asset holdings and earnings among farmers, local resource quality, and the development of other institutions (such as land rental markets). The study will also investigate the links between expropriation risk and investment using household level data. Rural China is an ideal case study of tenure insecurity, providing the requisite cross-sectional variation in expropriation risk. The researchers will try to measure the impact of expropriation risks on investment and the size of its welfare impact on households, and investigate how village level investment decisions (such as in irrigation and terracing) help attenuate adverse impacts of weak rights and the determinants of these village-level activities. Among other outcomes, the proposed research investigates the interactions of rights, market emergence, and soil quality in an economy in transition, and seriously examines the effect that expropriation risk may have on investment behavior and resource degradation.
