Urbanization is a process in which separated and dispersed property rights become concentrated in a specific location. This process involves a large volume of contracts to redefine and rearrange various property rights, producing various and high transaction costs. Efficient urbanization implies the reduction of these costs. This paper studies how efficient urbanization reduces transaction costs in the real world, based on a series of contracts rather than the coercive power. Specifically, this paper shows that Jiaolong Co. built a city by being a central contractor, which acquired planning rights by contract, and signed a series of tax sharing contracts with government, farmers, tenants, and business enterprises. These contractual arrangements greatly reduced the transaction costs and promoted the development.
I thank Ning Wang for recommendations on writings. I thank Qiren Zhou, Ming Lu, Binkai Chen, Yanjing Zhao, Lixing Li, Huiqiang Zhang, and participants in the workshop of Peking University, Xiamen University, Coase Center of Hongkong University, Annual Conference of New Institutional Economics of Zhejiang University.
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