I am also indebted to three sources for financial aid:to the Lilly Endowment Incorporated grant supporting the study of property rights and behavior at UCLA,to the University of Chicago,for their Post-Doctoral Fellowship in Political Economy for the academic year 1967-68，and to the Ford Foundation grant for International Studies including Agricultural Economics at the University of Chicago.
Steven Ng-Sheong Cheung
Chicago,1968
1.Introduction
A.The Scope
This study consists of two parts.The first part derives a theory of share tenancy with which to explore the nature of resource allocation under one of the main forms of land tenure in agriculture.Share tenancy is a land lease under which the rent paid by the tenant is a contracted percentage of the output yield per period of time.As a rule,the landowner provides land and the tenant provides labor;other inputs may be provided by either party.Share tenancy is thus share contracting,defined here as two or more individual parties combining privately owned resources for the production of certain mutually agreed outputs,the actual outputs to be shared according to certain mutually accepted percentages as returns to the contracting parties for their productive resources forsaken.The theory,to be derived from standard economic principles,may be generalized to all forms of land tenure under similar ownership of resources.
The prevailing impression is that share tenancy results in inefficient allocation of resources.[1]It will be shown here,both the oretically and empirically,that the inefficiency argument is illusory.The implied resource allocation under private property rights is the same whether the landowner cultivates the land himself,hires farm hands to do the tilling,leases his holdings on a fixed rent basis,or shares the actual yield with his tenant.In other words,different contractual arrangements do not imply different efficiencies of resource use as long as these arrangements are themselves aspects of private property rights.Implications of alternative theories will be tested against observations obtained primarily from Asian agriculture.
It remains to inquire further into the choice of contracts and various stipulations of land leases;and I shall attempt to show that the observed leasing arrangements are consistent with the theory of choice.The allocation of resources will differ,however,if property rights are attenuated or denied as private,or if the government overrules the market process of allocation.In the same theoretical context I shall argue,in Appendix A,that several hypotheses relating to disguised unemployment and the dual economy are erroneous.Their error is attributable to neglect of the flexibility of land use and failure to consider the pertinent property laws.
The second part of this study applies the theory of share tenancy to a situation in which the rental percentage is restricted to a legal maximum by the government.Two general hypotheses will be derived.One relates to compensating payments and tenure rearrangements,which are offsetting contractual rearrange-ments that may render the maximum rental percentage control immaterial.Another hypothesis,relating to resource reallocation,becomes significant only if compensating payments and tenure rearrangements are effectively prohibited by law.By the later hypothesis,the theory of share tenancy implies increased farming intensity in tenant farms if the rental share of the annual yield is legally reduced.Various implications for resource reallocation will be tested against observations.In particular,evidence will be presented to confirm that under effective rental share reduction the marginal product of land in tenant farms will be higher,and the marginal products of tenant inputs will be lower,than those of similar resources employed elsewhere.
Although similar rental share restrictions have been enacted in several Asian countries,Taiwan has been chosen for the second part of this study.Two advantages may be noted.First,during the first phase of the Taiwan land reform program,the rental share reduction was carried out before other reform measures were introduced.[2]Thus,there was a period of three years in which we can investigate the reallocation of resources as affected by the rental restriction independent of other factors.And second,in Taiwan both the provisions of the rental share reduction and their enforcement are restrictive enough to reveal some of the major implications derived from the theory of share tenancy.
[1].Classical economists aside,contemporary theses on share tenancy which imply inefficient resource allocation include:Rainer Schickele,"Effect of Tenure Systems on Agricultural Efficiency,"Journal of Farm Economics（February,1941）；Earl Heady,"Economics of Farm Leasing Systems,"Journal of Farm Economics（August,1947）；Earl Heady and Earl Kehrberg,"Relationship of Crop-Share and Cash Leasing Systems to Farming Efficiency,"Research Bulletin（Iowa State College Agricultural Experiment Station,May,1952）；Charles Issawi,"Farm Output under Fixed Rents and Share Tenancy,"Land Economics（February,1957）；N.Georgescu-Roegen,"Economic Theory and Agrarian Economics,"Oxford Economic Papers（February,1960）；and Amartya K.Sen,"Peasants and Dualism with or without Surplus Labor,"Journal of Political Economy（October,1960）.