Economics And Pricing Of Transferable Development Rights

In recent years, the transferable land development right (TDR) appears in developed coastal provinces in China, such as Zhejiang Province. The transaction of this right is a kind of market-oriented institutional innovation which could allocate farmland conversion rights across regions. The TDR marketing mechanism provides a new solution for the current policy failure of the cultivated land preservation. This transaction mechanism is supposed to promotes the optimization of the land resource distribution and the compensation of the inefficiency caused by the zoning policy. But, with the implement of the regional farmland balance and TDR equivalence trading, its flaw in operation had been revealed. Therefore, the central government issued relevant policies to prohibit those transactions.The reason that the central government prohibits those local TDR trading is because those TDR transaction might cause the excessive quotas and destroy the effort to preserve the farmland. Further research shows that, the scale and efficiency of the trading are strongly related to the price of the TDR. Due to the pressure of the administrative intervention and local officials’short-term interest oriented behavior, the price of the TDR is seriously underestimated. And that will surely result in the failure of the TDR marketing mechanism. In such a situation, excessive usage of the quota will cause the sprawl of the construction land, severely damaging the quota sellers’development potent. And thus the TDR marketing mechanism can not exist for long term.Actually, in China, the practice of the transferable development rights is still in the beginning stage and relevant policy structure has not been set up yet. Although price is the foremost factor in the trading system, there is no pricing method to determine the fair price of the TDR. However, it is too biased to totally deny the TDR marketing mechanism only for its operational flaw. If we can learn lessons from the Zhejiang’s example and establish reasonable pricing method and distribution plan for long-term interest, we can finally introduce the transferable quota administration into the farmland conversion process.This research is based on the comparison of the three kinds of distribution plan for the cultivated land resource—marketing plan, command plan and the TDR under the total amount control, analyze the cons and pros of the TDR trading market. Then take the Jinyun County in Zhejiang Province as example, by using the discounted cash flow model, this paper calculates the fair price range under diverse discount rate. And then compare the price range with the actual strike price in2009. Lastly, inspired by the environmental compensation mechanism and the practice of the tradable pollution permit in Zhejiang Province, this research also discusses the possible transaction plan of the TDR for long-term benefit.The main conclusions of this research are as follows:In the first place, as a kind of compensation mechanism, TDR under the total amount control could offset part of the externality. And therefore it is more economically efficient than the zoning policy. Besides, along with the raise of the marginal product of the farmland, this mechanism also avoids the corruption caused by the Pigou Tax or something like that.Secondly, the actual strike price of the TDR does not reflect its potential value. The current transaction mechanism fails to compensate the opportunity cost of the sellers. And therefore it is disadvantageous to the long-term development of the area.Finally, since cultivated land preservation could bring us long-term benefit, instead of the one time payment mode, we can try the payment by instalments for the transaction. And also in order to ensure this mechanism, reformation on the fiscal taxation and law structure is required.