How differentiated rural transformation drives common prosperity with a transaction cost explanation: Comparative evidence from suburban Huzhou

Rural differentiated transformation is a critical driver of common prosperity yet faces challenges in resource conversion and equitable benefit sharing. Integrating the "Lucid waters and lush mountains are invaluable assets" (hereafter referred to as the "two-mountains" concept) with a transaction cost perspective, this study examines how government-market synergy activates resource conversion. Drawing on the dynamic cyclical logic of the social-ecological systems framework, we construct an analytical framework comprising four dimensions, which included resource endowment, actor collaboration, conversion pathways and common prosperity effects, emphasizing their dynamic interactions. Empirical analysis of three suburban villages in Huzhou, Zhejiang, yields three key findings: (1) Transformation outcomes depend on rationally matching resource social embeddedness with governance structures. Low, medium, and high embeddedness generate distinct transaction costs (investment risks, coordination costs, and supervision costs), necessitating hierarchical, hybrid, and relational market governance, respectively. (2) Benefit distribution patterns are dictated by the governance structure's internal interest-linkage mechanisms. Loose, semi-loose, and tight linkages lead to trickle-down effects, disjointed sharing, and inclusive sharing, respectively, revealing the institutional trade-off between efficiency and equity. (3) Sustainable transformation relies on dynamic governance adaptation. Systems must calibrate governance boundaries and interest linkages based on feedback to mitigate endogenous risks and break negative path dependence. Theoretically, this study offers a micro-mechanism framework for rural transformation. It reframes the macro issue of government-market boundaries into a contextual, dynamic design problem, providing guidance for differentiated strategies to achieve common prosperity.