The allocative efficiency of construction land quota in rural China: a perspective of bidders’ behavior and regret psychology

The construction land quota pricing mechanism with cost plus pricing method is not sufficient to reflect its intrinsic value. This diminishes the willingness of farmers to voluntarily reclaim abandoned residential and other rural construction land, leading to suboptimal efficiency in rural land utilization and an excessive squandering of rural land resources. Thus, a sequential auction model with two stages for complementary goods was constructed, which considered the synergic characteristics between the land and quota. Further, regret psychology of bidder was considered in the case of winning or losing. A rational pricing mechanism has been developed to allocate construction land quotas, aiming to enhance farmers’ motivation to the vacant homesteads of reclamation and revitalizing the stock of rural construction land. The results revealed that the regret psychology in the case of winning would decrease the transaction price of the quota, i.e., the greater the perceived regret in the case of winning, the more significant the reduction in the bidding price offered. Moreover, the regret psychology in the event of losing/failure would increase the transaction price of quota. Furthermore, publishing only the winner’s price after the auction leads to the highest price of the quota offered by the bidder. In contrast, publishing only the loser’s bidding price leads to the lowest transaction price of the quota offered by the bidder. In addition, the fee for delayed construction would increase the bidding price of the construction land quota. Therefore, local governments should consider announcing only the winner of price after the quota auction has ended. In addition, imposing a fee for delayed construction would enhance the transaction price of land quota, increase farmers’ revenue from land reclamation, and incentivize farmers to reclaim unused rural land.