Property rights and land quality

Abstract This paper presents a novel study examining the effect of a property rights law reform that legalized land transfers on land quality. Using unique Chinese county‐level land erosion data, we show that formally legalizing land transfers significantly reduces land erosion. This is an important and surprising benefit of a secure land transfer right to the land resource itself and a positive biophysical spillover to the natural environment that is largely ignored in the existing literature and in the policy making process. We further demonstrate that the land quality improvement brought by the law reform was associated with an increase in farming investments that can improve land quality but are subject to economies of scale. Land concentration made such investments economically feasible. We also show that the land quality‐improving benefits are unevenly distributed across regions with different socioeconomic backgrounds. Future land law reforms should consider both the potential efficiency and equality implications in terms of land quality.