Trust and land Lease: The role of informal institutions in land market in rural China

Abstract

While formal institutions have been extensively studied in land markets, the role of informal institutions, particularly interpersonal trust, remains underexplored. This study examines the impact of trust on land lease behavior, using large-scale survey data from 2012 to 2022. The findings indicate that farmers with greater trust in strangers are more likely to lease land, with this effect being particularly pronounced among men, less-educated individuals, and low-income households. Additionally, higher trust in strangers increases the likelihood of leasing land to non-acquaintances rather than to acquaintances or relatives, promoting broader market participation. However, market factors and clan networks can substitute for trust, leading to similar leasing patterns. These substitution effects exhibit variability by region, with southern and northern China demonstrating markedly divergent effects. These findings highlight the importance of trust in shaping smallholder land use and the complex interplay between formal and informal institutions, offering insights for land policy design and rural development strategies in emerging economies.