Mechanism Design Of Right To Land Use

Monopoly over land ownership determines that the land market is not a completecompetitive market. Expansion of urban and rural construction directly leads to thereduction of land for agriculture，with the increase in land finance，has worsened theincome distribution discrepancy. On one hand，making the right to land use permanentwill certainly affect the government’s land acquisition system causing the government’sfiscal revenue to decline. On the other hand，the efficient allocation between land forconstruction and land for agriculture in urban area as well as the measures taken toprotect the stability of expected earnings of farmers concerns social justice.This paper first analyzes the impact of the government’s loan using right to landuse on the efficiency of market resource allocation in the environment of land finance，This paper provides a proof about the justification for the dependence of the localgovernments’ financing platform on the right in land use. Within the framework byDiamond-Dybvig (1983)，we studied how the efficiency of resource allocation could beimproved by the dependence of local financing platforms on the state-ownedcommercial banks. The mechanism of improving the efficiency of resource allocation isas following: by a rising of the ratio of banking loan financing to public debt financing，the price of debt could be increased，then the proportion of the investments in shortasset and financing asset would be reduced，and the proportion of investment in longasset and real urban infrastructure asset would be increased，hence，the efficiency ofrecourse allocation could be improved.This paper discussed the realization of mechanism with right in land use under atwo dimensional message spaces. A mechanism can be designed to implement dominantequilibrium which addresses both information efficiency and incentive compatibility.The result showed that there exists a information efficient mechanism which can realizethe goal function of government with truth-telling constraint. If the agents have privateinformation，their truth-telling strategies may not be Nash equilibrium，but it could be adominant equilibrium implemented by a mechanism.This paper discusses the different parameter space under the influence of thecontrol variable chosen by the mechanism designer. The space would be differentconstraint to each agent and different mechanism has its implementation conditionbased on Bayesian equilibrium. The sufficient and necessary condition of dual equivalent mechanism was presented. As an application of this study，the efficiency andwelfare of China’s land auction mechanisms were compared under truth-tellingimplementation. The result showed that choosing limited housing price auction orlimited land price auction was dual equivalent when the government revenue wasmaximized. The balance between the government revenue and consumer surplusdepends on the comparison between the efficiency of the market mechanism andnon-market mechanism. There is a tradeoff between the profit of developer andconsumer surplus， but the social welfare cannot be improved by truth-tellingimplementation.In conclusion，once right to land use is made permanent，tax and other feescollection will become the main source of the government’s fiscal revenue. However，the government still needs to make choices given different policy goals. Options can bemaximization of either its fiscal revenue or social welfare considering the interests ofconsumers and of the real estate developers. If maximizing social welfare is the priority，how the government realizes its pre-set goals through the control over both ofland-transferring fees and the rate of property tax becomes critical.