Property Rights, Land Values and Urban Development
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Property Rights, Land Values and Urban Development

Betterment and Compensation in China

Li Tian

This book presents an analysis of betterment and compensation issues under the Land Use Rights (LURs) System in China since 1988. The topic originates from the observation of widening inequity and increasing uncertainty associated with the failure of government to adequately address betterment and compensation issues. An analytical framework of institutions and property rights is employed to examine socio-economic impacts under the LURs system, in particular, the role of the state is analyzed to explore the effects of government intervention in land markets.
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Chapter 3: Studying betterment and compensation from the perspective of property rights

Li Tian


Land value largely depends on location advantages and decisions concerning the use of neighbouring sites. This interdependent quality of urban land is referred to by economists in terms of externalities: those impacts (positive or negative) that are not reflected in the pricing system of land (Loughlin, 1988). Betterment and worsenment are typically derived from externalities: betterment is a positive externality generated neither by the capital investment nor by the decisions of land users themselves; worsenment is a negative externality in the same way. In dealing with the externality issue, the Pigovian argument and the Coase theorem are most influential. The Pigovian approach to internalizing an externality is through taxation and regulation (Pigou, [1920] 1929). For instance, a factory emits smoke that pollutes the environment, thereby incurring damage to the community. The costs of polluting, however, are not incorporated into the production costs of the factory. Thus a divergence between ‘marginal social net product and marginal private net product’ emerges.

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