An improved sequential auction with complementarity for pricing the construction land quota

Abstract

The paradox between idle homesteads in rural areas and the shortage of construction land in urban areas is concerning. Hence, local governments encourage farmers to reclaim their idle homesteads and farmlands to generate quota. However, the current quota price, which is based on the land reclamation cost, is often inadequate to motivate farmers. This study proposed that the construction land quota and construction land are complementary items, and hence, their pricing should be studied simultaneously instead of independently. Therefore, the classical sequential auction model with complementarity was improved using the core characteristics of quota transactions and those were applied to design optimal pricing mechanisms. Subsequently, the influence of relevant factors on the bidding price was analysed. The results indicated that the bidding price decreases with an increase in the number of bidders and that a bidder’s revenue is at a loss when they acquire the quota but fail to obtain the land; hence, the revenue probability is lost. However, bidding prices increase when the fine of delaying construction increases. To raise the quota price and encourage relatively more farmers to reclaim their idle homesteads, local governments should appropriately increase the delaying construction fines or repurchase the quota at a premium from the bidder who acquires the quota but fails to obtain the land, which is beneficial for easing conflict between construction land demands and farmland protection and for promoting the sustainable development of China’s social economy.