Can the visible and invisible hands coexist in land pricing?

He, Yong (2018): Can the visible and invisible hands coexist in land pricing?

Abstract

This study addresses state intervention in land pricing. Theoretical modelling identifies risk aversion as the determining factor for the coexistence of the visible and invisible hands. Our empirical tests using Chinese data confirm the absence of this coexistence. Exploring the micro-foundation of this “two-hand” model and extending the Lucas critique, we illustrate the impossibility of this coexistence under the land regime of state ownership in a market environment: state interference in land pricing causes people to drastically alter their expectations and neutralizes their risk aversion, leading to the deactivation of the stochastic discount factor and the market mechanism. This work provides a “risk aversion” approach to the causes of “state failure” and implies that under state ownership of land, the distortion of land prices is inevitable.

• Item Type: MPRA Paper
• Language: English
• Keywords: land pricing, state ownership of land, state failure, the Lucas critique, risk aversion.
• Subjects: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing ; Trading Volume ; Bond Interest Rates; H - Public Economics > H7 - State and Local Government ; Intergovernmental Relations > H71 - State and Local Taxation, Subsidies, and Revenue; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q24 - Land

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