Auction Mechanism Design for Quota of Construction Land Based on Time Value of Projects on Land

Abstract

The main function of the quota of construction land, which is generated through famers reclaiming their idle homesteads, is to have the land be developed in advance. The value of the quota is the added time value due to advanced development of the land. However, the quota is currently priced based on the reclamation cost, which is unreasonable and fails to stimulate farmers to supply quotas. Aiming at the characteristic of complementarity between the quota and the land, this paper develops a two-stage sequential auction model of complementary products to study the pricing mechanism of the quota. Through theoretical and numerical analyses, this paper obtains the equilibrium bidding price of the developers, and the expected income of the farmers. We found that our mechanism can make all developers reveal the true value of the quota for them and is a reasonable and feasible pricing mechanism. The bidding price of all bidders on the quota decreases with the increase of the number of bidders, but increases with the rise of the fee for idle land. The equilibrium bidding price on the land of the bidder who wins the quota increases with the rise of the fee for idle land. Therefore, the government should raise the fee for idle land, to increase the bidding price of the quota and the land. As a result, more farmers would be stimulated to reclaim their idle homesteads, and the efficacy of land use would be improved.