Deng, "Leasehold, ownership, and urban land use," 2000

Feng Deng, Ph.D.

Abstract (Summary)
This dissertation is about the relationship between property rights, local public finance and urban land use. Its importance has been demonstrated by real world development in recent decades. Examples include shopping malls and CIDs in commercial and residential real estate, respectively, as well as the widespread use of ground lease in transitional economies such as China.

I argue that, from the transaction cost perspective, the ground lease system is most efficient in providing territorial collective goods. Because the consumption of collective goods and land are bundled together and landowners have only limited ex post mobility, the efficiency of ground lease system lies in the integration of landowner and collective goods provider. However, for some land uses, the bundled consumption of land and collective goods may also require some complex property rights arrangements that fit into both kinds of goods. Hence, the different characteristics of commercial and residential real estate determine the dominance of the ground lease systems and CIDs, respectively.

But, for ground lease system with public land ownership, issues arising from political institutions make any efficiency arguments more complicated. In the case of China, I hypothesize that the ground lease system is an efficient choice due to insecure property rights and rapid urban growth. In this sense, a better implementation of the ground lease system should enhance efficiency of urban economy. But my quantitative analysis, which is based on production function approach, finds that the percentage of traditional administrative allocation is positively related to urban productivity. This poses a puzzle.

Case studies on Beijing and Chongqing suggest that Chinese local government, as landowner, collective goods provider and owner of SOEs, faces problems of role conflicts. Although government monopoly over land supply may be mitigated by inter-governmental competition under fiscal decentralization, there is a working tension between the growth of private economy and the internal promotion system of the communist party. The misalignment of local officials' personal interest and the public interest helps to explain the negative relationship between urban productivity and the degree of land reform implementation.

Advisor: Gordon, Peter