Theoretical And Empirical Study On The Bid Invitation, Auction And Listing Mechanisms To Lease Land Use Right Of The Profit-making Land In China

Since2004, the core position of Bid invitation, Auction and Listing mechanismfor the lease of profit-making land use right in the China’s land market has beenestablished. Empirical data shows that different methods have been used in differentperiods and regions to lease land use right, and there are differences between the landprices formed by those three methods. According to the relevant researches about theRevenue Equivalence Theorem, different assumptions will have different impacts onthe expected revenue of different auction models. Furthermore, under the prerequisiteof Bid invitation, Auction and Listing mechanism, local governments could stillchoose between the methods of bid invitation, auction and listing. Combined with thedifferences between the land prices of those methods, the behavior of localgovernments will exert influence on land prices. In addition, local governments areallowed to make slight modifications to local Bid invitation, Auction and Listingmechanism. For example, Shanghai has changed the bidding rule in the live auctionstage of the listing method to lease the use right of residential land from ascendingauction to first price sealed-bid auction since2007. Another example is the rule ofdetermining lease method based on the number of bidders in Chongqing. Thosebehaviors of local governments will also affect land prices. The aim of this thesis is tostudy different lease methods of land use right theoretically and empirically, in orderto reveal the cause of different land prices formed by different methods, and analyzethe behavior of local government in land market.Before studying the Bid invitation, Auction and Listing mechanism, it isnecessary to make reasonable assumptions by abstracting from the characteristics ofChina’s land market, real estate developers and their bidding behaviors, and constructsuitable theoretical models based on the current Bid invitation, Auction and Listingmechanism. Specifically, this thesis supposes the value affiliation and informationalasymmetry between bidders, and constructs a two-stage ascending auction model with information revelation and reentry in the first stage to capture the listing mechanism.This thesis points out that it is the strategy of hiding information of the informedbidder in the first stage that causes the phenomenon of bids concentrating in the livingauction stage. In addition, this thesis constructs a hybrid auction model to study thereformed listing mechanism in Shanghai and points out that this reform enhances theincentive of informed bidder to hide information in the public bidding stage andthereby makes more land transaction to enter the live auction stage. What’s more, thisthesis constructs a one-shot ascending auction model with information revelation anda first price sealed-bid auction model with secret reserve price to capture the auctionmechanism and bid invitation mechanism respectively. After ensuring thereasonability of the theoretical assumptions and auction models, this thesis derives thebidding strategies of bidders and compares the expected revenue of differentmechanisms, and makes empirical study to justify the theoretical results bytransaction data. The study of this thesis could also be used to explain the use ofdifferent mechanisms in different periods and regions, and the behavior of localgovernment in land use right leasing.This thesis obtains the following theoretical conclusions. The listing method withinformation revelation forms a higher land price than the bid invitation method withsecret reserve price. When it is easier to reveal information in the live auction stage,the reformed listing method could reduce land price effectively. When it is difficult toreveal information in the bidding process, or there are more bidders in the auctionmechanism, the land price formed by this mechanism is higher than the listingmechanism. In the empirical study, this thesis uses transaction data in the land marketof Beijing, Shanghai and Chongqing to prove those theoretical conclusionsrespectively. The advantage of the listing mechanism in promoting transactions andraising prices earns the preference of local market and the widest application of thismechanism. The bid invitation mechanism is used to reduce price when the market isoverheating. The reformed listing method is used in Shanghai’s residential land market to reduce land prices. The auction method is still used in West-and-Middleregions, say Chongqing, in which the land market is relatively under-developed toraise land prices. In addition, this thesis points out that Beijing’s local governmentpursues more revenue from land market in the short run, and helps the centralgovernment to control market in the long run. However, the aim of the localgovernment in Chongqing is purely for higher land prices, this is also why it carriesout the rule of determining lease methods based on the number of bidders.This thesis also analyzes the listing method of―with limit on land price, biddingon the square of indemnificatory house‖and the bid invitation method of―withcertain level of square of indemnificatory house, bidding on the price of land‖, andshows that combined with suitable initial price and the policy of―all deals withpremium rate of more than50%must be reported to the central government‖, thelisting method would reduce land prices and guarantee the development ofindemnificatory house at mean while. With equal development of indemnificatoryhouse, land price under procurement rule is lower, while with equal land price, thesquare of indemnificatory house under listing rule is higher. Thus, local governmentcould choose more effective mechanism according to specific conditions.The conclusions of this thesis offer some insights and suggestions with respect tothe improvement of Bid invitation, Auction and Listing mechanism and themanagement of local government behavior. On one hand, in order to realize themarket value of land as a national asset, more information could be provided touninformed bidders, or forbidding reentry in the public listing stage, or extend thetime interval between bidding rounds in the ascending auction to promote theinformation revelation in the bidding process. On the other hand, the financing cost ofmiddle-and-small developers should be reduced, or the land size in single auctionshould be decreased to encourage more developers to participate in the bidding.Furthermore, in order to prohibit local government raising land prices in the name ofrecovering market, the percentage of using bid invitation mechanism should be regulated. In addition, the central government should require the local governments ofeastern regions to pay more attention to market control, whiles allow the localgovernments of middle-and-western regions to modify their land lease mechanism tocreate a more mature land market. At last, the central government should speed up thefinance and tax reform, and try to incorporate the control of land prices and theconstruction of indemnificatory house into the assessment system of local officials,with the aim to restrain the incentive of local government to raise land prices.The originality of this thesis is to use auction theory to analyze the Bid invitation,Auction and Listing mechanism to explain the bidding behavior of developers, andcompare the land prices formed by different lease methods to explain the applicationof different methods and the behavior of local governments. In this process, this thesisderives some conclusions different from established researches. Under the assumptionof value affiliation, the information of when competitors quit will reduce the expectedrevenue of the seller. And hybrid auction will be dominated by ascending auctions inwhich information could be revealed, since it might be impossible to revealinformation in the ascending auction part of hybrid auction, and the effect ofaggressive bidding caused by the advantage of sealed-bid auction part when there isinformation asymmetry between bidders couldn’t exceed the effect of informationrevelation.