Endowment Effect,Fiscal Illusion and Public Policy:A Behavioral Economics Analysis on the Contentious Events in Demolition of Houses
Qing Zhiqiong
The contentious events in demolition of houses have been often occurring in recent years in China.It is founded that endowment effect and fiscal illusion are the cognitive and institutional basis of the contentious events;a mechanism that caused these events will be explored in this paper.Endowment effect is psychological basis of contentious events,because homestead is personhood property,so a man's home is his castle';fiscal illusion is the cognitive basis of contentious events, because homestead is taken as fungible property by condemners,so a mans home is his house that is worth of the limited sum of money.Two different evaluated models lies in the same property,so there may be the potential for contentious events in the present institutional environment of China.There are multi - weakness in the present Chinese system of Eminent Domain.Besides the absence of effective constraints on the behaviors of takings,the administrative allocative mechanism of land resources may be the most important root of contentious events,so market - oriented reforms should be pushed further.Measures and policy for preventing the contentious events will be put out as follows:to acquire property by market mechanisms;to adopt a compensation requirement of more than fair market value;to eschew the intensive areas of subjective value or to forgive the plan of takings;to enforce strict mechanisms to constraint on the behaviors of takings.
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