| Abstract | This paper examines the characteristics in the transition of China’s rural land rental market based on household survey in 2000 and 2009 respectively, which shows an very important phenomena, that is, land rights transfer between relatives largely dominates. From the viewpoint of transaction cost theory, we analyzes uncertainty, asset specificity and transaction frequency in rural land right transfer, and finds that the bilateral governance structure, a typical relational contract, supported by the relative relationship is a rational response to real transaction constraints. Based on an econometric model, it is found that the tenant farms prefer to use more organic fertilizers, a typical asset-specificity investment, on the land rented from whose relative than that from others, which suggest the significant role of bilateral governance structure in reducing the transaction cost in land rental market. Therefore, the transaction cost in cultivated land rental market must be further reduced and more space for market allcation of cultivated land must be created, which will fundamentally improved the efficience of rental market. |