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Reputation Effect on Contract Choice and Self-Enforcement: A Case Study of Farmland Transfer in China
The prevailing informal contracts of farmland transfer in China are facing frequent disputes and defaults, which call for effective self-enforcement mechanisms operating through transactors’ reputations and social networks. However, the effects of reputation on contract choice and self-enforcement h...
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Published in: | Land (Basel) 2022-08, Vol.11 (8), p.1296 |
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description | The prevailing informal contracts of farmland transfer in China are facing frequent disputes and defaults, which call for effective self-enforcement mechanisms operating through transactors’ reputations and social networks. However, the effects of reputation on contract choice and self-enforcement have not been thoroughly considered and examined by existing research in the case of farmland transfer. This study explores the reputation’s ex-ante signaling effect on farmers’ contract choices and the ex-post penalty effect on farmers’ performance in informal contracts. Based on 403 transfer contracts obtained from a field survey conducted in the Hebei province of China, we apply the multinomial logit model and Heckman probit model to perform empirical analysis. The results show that, affected by the penalty effect, farmers with good reputations are more likely to fulfill informal contracts to avoid reputation damage and the resulting loss of future trading opportunities. However, in the ex-ante stage of contract choice, a farmer’s reputation has no significant signaling effect on the formation of informal contracts. The informal contracts are chosen due to farmers’ trust in the close social network and the demand for reduced transaction costs. These findings highlight the importance of personal reputation serving as a form of relational governance in the self-enforcement of informal contracts, which provides a means of enhancing the informal contract’s effectiveness in terms of farmland transfer in the rural acquaintance society. It also provides insights into the necessity of creating a supportive environment for informal rules. Policies should encourage the building of personal reputation and establishment of good social norms to form a long-term, stable and reasonable contractual relationship for farmland transfer. |
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However, the effects of reputation on contract choice and self-enforcement have not been thoroughly considered and examined by existing research in the case of farmland transfer. This study explores the reputation’s ex-ante signaling effect on farmers’ contract choices and the ex-post penalty effect on farmers’ performance in informal contracts. Based on 403 transfer contracts obtained from a field survey conducted in the Hebei province of China, we apply the multinomial logit model and Heckman probit model to perform empirical analysis. The results show that, affected by the penalty effect, farmers with good reputations are more likely to fulfill informal contracts to avoid reputation damage and the resulting loss of future trading opportunities. However, in the ex-ante stage of contract choice, a farmer’s reputation has no significant signaling effect on the formation of informal contracts. The informal contracts are chosen due to farmers’ trust in the close social network and the demand for reduced transaction costs. These findings highlight the importance of personal reputation serving as a form of relational governance in the self-enforcement of informal contracts, which provides a means of enhancing the informal contract’s effectiveness in terms of farmland transfer in the rural acquaintance society. It also provides insights into the necessity of creating a supportive environment for informal rules. Policies should encourage the building of personal reputation and establishment of good social norms to form a long-term, stable and reasonable contractual relationship for farmland transfer.</description><identifier>ISSN: 2073-445X</identifier><identifier>EISSN: 2073-445X</identifier><identifier>DOI: 10.3390/land11081296</identifier><language>eng</language><publisher>Basel: MDPI AG</publisher><subject>Agricultural land ; Agriculture ; Breach of contract ; Case studies ; Contracts ; Economic aspects ; Empirical analysis ; Enforcement ; Farmers ; farmland transfer ; Farms ; Land titles ; Logit models ; Norms ; Registration and transfer ; reputation effect ; Reputations ; Rural areas ; self-enforcement of informal contract ; Signaling ; social network ; Social networks ; Social organization</subject><ispartof>Land (Basel), 2022-08, Vol.11 (8), p.1296</ispartof><rights>COPYRIGHT 2022 MDPI AG</rights><rights>2022 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https://creativecommons.org/licenses/by/4.0/). 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However, the effects of reputation on contract choice and self-enforcement have not been thoroughly considered and examined by existing research in the case of farmland transfer. This study explores the reputation’s ex-ante signaling effect on farmers’ contract choices and the ex-post penalty effect on farmers’ performance in informal contracts. Based on 403 transfer contracts obtained from a field survey conducted in the Hebei province of China, we apply the multinomial logit model and Heckman probit model to perform empirical analysis. The results show that, affected by the penalty effect, farmers with good reputations are more likely to fulfill informal contracts to avoid reputation damage and the resulting loss of future trading opportunities. However, in the ex-ante stage of contract choice, a farmer’s reputation has no significant signaling effect on the formation of informal contracts. 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Policies should encourage the building of personal reputation and establishment of good social norms to form a long-term, stable and reasonable contractual relationship for farmland transfer.</description><subject>Agricultural land</subject><subject>Agriculture</subject><subject>Breach of contract</subject><subject>Case studies</subject><subject>Contracts</subject><subject>Economic aspects</subject><subject>Empirical analysis</subject><subject>Enforcement</subject><subject>Farmers</subject><subject>farmland transfer</subject><subject>Farms</subject><subject>Land titles</subject><subject>Logit models</subject><subject>Norms</subject><subject>Registration and transfer</subject><subject>reputation effect</subject><subject>Reputations</subject><subject>Rural areas</subject><subject>self-enforcement of informal contract</subject><subject>Signaling</subject><subject>social network</subject><subject>Social networks</subject><subject>Social organization</subject><issn>2073-445X</issn><issn>2073-445X</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2022</creationdate><recordtype>article</recordtype><sourceid>PIMPY</sourceid><sourceid>DOA</sourceid><recordid>eNpNkcFqHDEMhofQQkOaWx_AkGsntcf2eNzbMmzSQKDQpJCb0chy4mXX3npmD3n7erOlRDroR0gfP1LTfBH8WkrLv20heSH4IDrbnzXnHTeyVUo_fXinPzWX87zhNayQg9LnDf2i_WGBJebE1iEQLqyqMaelQNXjS45IrKLZA21Du04hF6QdpeU7W7ERZmIPy8G_shzYDZTd0QV7LJDmQIXFinqJCT43HwNsZ7r8Vy-a3zfrx_FHe__z9m5c3beoeL-0qh_41HsVrDehJkhOQZHHTmhjBg9gtecTV1ZLQsAJVAidkaCtRuu9vGjuTlyfYeP2Je6gvLoM0b01cnl2UJaIW3KDl2gRuykYrbjFCbkKGgcQoLBDVVlXJ9a-5D8Hmhe3yYeSqn3XGd53alA9r1PXp6lnqNBYz3M8XE1Pu4g5UYi1vzJK9UZwcVz4elrAkue5UPhvU3B3fKR7_0j5FwPRkGY</recordid><startdate>20220801</startdate><enddate>20220801</enddate><creator>Li, Hanning</creator><creator>Han, Hongyun</creator><creator>Ying, Shiyu</creator><general>MDPI AG</general><scope>AAYXX</scope><scope>CITATION</scope><scope>7SN</scope><scope>7ST</scope><scope>ABUWG</scope><scope>AFKRA</scope><scope>ATCPS</scope><scope>AZQEC</scope><scope>BENPR</scope><scope>BHPHI</scope><scope>C1K</scope><scope>CCPQU</scope><scope>DWQXO</scope><scope>GNUQQ</scope><scope>HCIFZ</scope><scope>PATMY</scope><scope>PIMPY</scope><scope>PQEST</scope><scope>PQQKQ</scope><scope>PQUKI</scope><scope>PYCSY</scope><scope>SOI</scope><scope>DOA</scope><orcidid>https://orcid.org/0000-0003-2969-3907</orcidid><orcidid>https://orcid.org/0000-0001-6990-5455</orcidid></search><sort><creationdate>20220801</creationdate><title>Reputation Effect on Contract Choice and Self-Enforcement: A Case Study of Farmland Transfer in China</title><author>Li, Hanning ; Han, Hongyun ; Ying, Shiyu</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c406t-4680b6d4f9d7f7f7a30ef4edc215778daa95d0b04953ecacba4ff273a595c9dd3</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2022</creationdate><topic>Agricultural land</topic><topic>Agriculture</topic><topic>Breach of contract</topic><topic>Case studies</topic><topic>Contracts</topic><topic>Economic aspects</topic><topic>Empirical analysis</topic><topic>Enforcement</topic><topic>Farmers</topic><topic>farmland transfer</topic><topic>Farms</topic><topic>Land titles</topic><topic>Logit models</topic><topic>Norms</topic><topic>Registration and transfer</topic><topic>reputation effect</topic><topic>Reputations</topic><topic>Rural areas</topic><topic>self-enforcement of informal contract</topic><topic>Signaling</topic><topic>social network</topic><topic>Social networks</topic><topic>Social organization</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Li, Hanning</creatorcontrib><creatorcontrib>Han, Hongyun</creatorcontrib><creatorcontrib>Ying, Shiyu</creatorcontrib><collection>CrossRef</collection><collection>Ecology Abstracts</collection><collection>Environment Abstracts</collection><collection>ProQuest Central (Alumni)</collection><collection>ProQuest Central</collection><collection>Agricultural & Environmental Science Collection</collection><collection>ProQuest Central Essentials</collection><collection>AUTh Library subscriptions: ProQuest Central</collection><collection>ProQuest Natural Science Collection</collection><collection>Environmental Sciences and Pollution Management</collection><collection>ProQuest One Community College</collection><collection>ProQuest Central</collection><collection>ProQuest Central Student</collection><collection>SciTech Premium Collection</collection><collection>Environmental Science Database</collection><collection>ProQuest - Publicly Available Content Database</collection><collection>ProQuest One Academic Eastern Edition (DO NOT USE)</collection><collection>ProQuest One Academic</collection><collection>ProQuest One Academic UKI Edition</collection><collection>Environmental Science Collection</collection><collection>Environment Abstracts</collection><collection>Directory of Open Access Journals(OpenAccess)</collection><jtitle>Land (Basel)</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Li, Hanning</au><au>Han, Hongyun</au><au>Ying, Shiyu</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Reputation Effect on Contract Choice and Self-Enforcement: A Case Study of Farmland Transfer in China</atitle><jtitle>Land (Basel)</jtitle><date>2022-08-01</date><risdate>2022</risdate><volume>11</volume><issue>8</issue><spage>1296</spage><pages>1296-</pages><issn>2073-445X</issn><eissn>2073-445X</eissn><abstract>The prevailing informal contracts of farmland transfer in China are facing frequent disputes and defaults, which call for effective self-enforcement mechanisms operating through transactors’ reputations and social networks. However, the effects of reputation on contract choice and self-enforcement have not been thoroughly considered and examined by existing research in the case of farmland transfer. This study explores the reputation’s ex-ante signaling effect on farmers’ contract choices and the ex-post penalty effect on farmers’ performance in informal contracts. Based on 403 transfer contracts obtained from a field survey conducted in the Hebei province of China, we apply the multinomial logit model and Heckman probit model to perform empirical analysis. The results show that, affected by the penalty effect, farmers with good reputations are more likely to fulfill informal contracts to avoid reputation damage and the resulting loss of future trading opportunities. However, in the ex-ante stage of contract choice, a farmer’s reputation has no significant signaling effect on the formation of informal contracts. The informal contracts are chosen due to farmers’ trust in the close social network and the demand for reduced transaction costs. These findings highlight the importance of personal reputation serving as a form of relational governance in the self-enforcement of informal contracts, which provides a means of enhancing the informal contract’s effectiveness in terms of farmland transfer in the rural acquaintance society. It also provides insights into the necessity of creating a supportive environment for informal rules. Policies should encourage the building of personal reputation and establishment of good social norms to form a long-term, stable and reasonable contractual relationship for farmland transfer.</abstract><cop>Basel</cop><pub>MDPI AG</pub><doi>10.3390/land11081296</doi><orcidid>https://orcid.org/0000-0003-2969-3907</orcidid><orcidid>https://orcid.org/0000-0001-6990-5455</orcidid><oa>free_for_read</oa></addata></record> |
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subjects | Agricultural land Agriculture Breach of contract Case studies Contracts Economic aspects Empirical analysis Enforcement Farmers farmland transfer Farms Land titles Logit models Norms Registration and transfer reputation effect Reputations Rural areas self-enforcement of informal contract Signaling social network Social networks Social organization |
title | Reputation Effect on Contract Choice and Self-Enforcement: A Case Study of Farmland Transfer in China |
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