Itfollowsthattomaximizehisinefromlandsubjecttothelegalconstraintofrentalsharereduction,(a)theownercansuccessfullyinducethetenanttomitmorefarminginputsaslongasthetenantreceivesafarminginegreaterthanhisalternativeearning(sinceotherpotentialtenantswilloffertodoso);and(b)providedthatcondition(a)holds,thelandownerwillinducemoreintensivefarmingaslongasthemarginalreturntoadditionaltenantinputsisgreaterthanzero,fortherentalineunderthes(a),wehavethenon-landcostconstraint;in(b),wehavethelimitofthephysicalconstraint,namely,,simplydefinedhereasanincreaseinf/h,theamountofnonlandfarminginputs(ornonlandfarmingcost,f),andweshallanalyzethematsomelength.
Butfirstcertainassumptionsmustbespecified.(1)Aftertheimpositionof
,assumethatthereisnopensating(offsetting),theownersinefromlandisconfinedstrictlyto
oftheannualyield.(2)Foranalyticalconvenience,(3),assumezerotransactioncosts.
www.youxs.org—IllustratedwithInputAdjustmentsforOneTenantFarm
Theincreaseoffarmi,whilepetitionallowsthelan,whilepetitioninducesmoretenantinputsoverthegivenland,,,;
/hisarectangularhyperbola,representingthecontractuallystipulated(fixed)costoftenantinputs,f,dividedbythelandholding,www.youxs.org,
associatedwiththeconstanttenantinputs,therentperunitofland,(q-f)/h,,where(q-f)/hisatamaximum,andtheopenmarketrentalpercentageequalsar/ap.
Undertheadditionalconstraintof
,however,the(q-f)/,(q-f)/h,theownerwillnowmaximize(q/h)
subjecttotheconstraintoff/www.youxs.org(ar/ap)islegallyreducedto
,rcentage,regardlessofwhethertheinitialcontractisforfixedorsharerent.[1]Thecorrespondingshareforthetenantwillbe.
Withoutresourcereallocation,therentperunitoflandwillnowbeaeinsteadofar,andthetenantsinewillbeattimesoa,(q/h)
,thelandownercanreducethetenantslandholdingtoobwithoutreducingtenantinputs,subjecttothenonlandcostconstraint,f/www.youxs.org(nonland),,thelandownercanparcelittoothertenantsinasimilarmanner,cultivateithimself,orhirelaborerstotillit(thislastpossibilitywasrestrictedinTaiwan).Theresult,underthestrictlyenforcedshareconstraint,isaresourcereallocationtoahigherf/hratiointenantfarms,oranincreaseintenantfarmingintensityoverthatinanunrestrainedmarket.
Theeconomicimplicationsofincreasingf/,land,h,andtenantlabor,www.youxs.org,
,/hratioassociatedwithlandholdingobaftertheadjustment,,t,,nonlandinputsinvestedintenantfarmsasaresultofthesharerestrictionwillyieldreturnsataratelessthantheinterstrate.
,ifthetenantwagerateislowenoughtoformf*/h,andgiventheconstraintsandassumptionsspecified,,thelandownerwillreducelandsizetooc,where(q/h)
isatamaximumandwherethemarginalproductoftenantlabor(the”other”factor)willbezero.[2]Thetenantwillthenbereceivingaresidualine(whichequalsijtimesoc),anamountwhichthelandownercouldextractinalumpsum(apensatingpaymentwhichweassumeaway).