Second,/,themeticulousreadermayrightlypointoutthatthemarginalproductor,however,resultinginamarginalfarmingcost(whichincludesalltenantinputs)beinghigherthanthemarginalreturn.
[1].Notealsothatunder
oftheannualyieldthelandownercannotconvertasharecontracttoafixedrentcontracttoprotecthiswealth.
[2].Linearhomogeneousproductionfunctionisassumedhere.
www.youxs.org—IllustratedwithInputAdjustmentsforMultipleTenants
Theimplicationofincreasedfa,(a)thelandowneremploysalargenumberoftenantsonhislandholdings;(b)thetenantsarecultivatinghomogeneousland,producingthesameproductwithidenticalproductionfunctions,andthustheinitialequilibriumrentalpercentageforeachtenantbeforethesharerestrictionisthesame;and(c)thereisonlyonetenantinput,saylabor.
Infigure7,totalproductismeasuredalongtheverticalaxis,andthenumberoftenantsortenantworkers,t,
isthetotalproductoftenantworkers,withthetotallandholdingofalandownerheldconstant(withassumptiona).,withWrepresentingthewagerateandtthenumberofworkers(withassumptionc).Underapetitivetenantlabormarket,
,Wt,fromthetotalproduct,.
Withoutlegalsharerestriction,theequilibriumnumberoftenantsemployedwillbeot,wherethetotalrent
,thetotalrentwillbetb(=ta—ti),andtherentalpercentagechargedforeachtenantequaltotb/ta(withassumptionb).Inequilibrium,themarginaltenantcostequalsthemarginalproduct,www.youxs.org.,
=W=
Asaresultofthepercentagerentreduction(sayfrom70percentto40percent),theshareconstrainttothelandownerisrepresentedbythecurve
,whereQisthetotalproductand
is40percentof
,ontheotherhand,
andwithnoadjustmentinfarmingintensity,thelandownerstotalsharewillbetd,andthetenantssharetc(=ta—td).GiventhetenantcostconstraintofWt,however,thelandownerwillincreasetenantinputtot,whereboth
and
aremaximizedsubjecttotheconstraintsof
andWt;thatis,Wt=.
Employingtenantsotonthegivenland,thelandownerssharewillbetg,,thetotalrentcurvesubjecttotheconstraintsof
andWtwillbetheheavyline
,whichriseswith
fromotogandkinksdownwardalongwith
Theportionof
fromgtokmeasuresthedifferenceof
andWt,whichmeansthattheconstraintofWtexceedsthecon-straintof
hasadiscontinuousderiv-ative,andthemarginalreceipt,
,isundefinedatg,where
isatamaximum.[1]Ifthelimitofthephysicalconstraint(pointjinfigure)isnotreached,maximum
isattainedwhenWt=[123b],orthealternativeearningoftenantlaborequalsitsineasashareof
(seepointeinfigure).Restingatg(ore),therefore,isanewequilibriumbasedonthepremiseofrentalmaximizationsubjecttotheadditionallegalconstraintof.
Atthisequilibrium,themarginaltenantcost,
=W,isgreaterthanthemarginalproduct,.
Ifthetenantsalternativeearningsarelower,withwagerateW,,tomaximizeinethelandownerwillonlyallowtheincreaseintenantinputtot”,where
,t
willnowbeatj,wherewehave
Inthiscase,however,thetenantswillbereceivingresidualsovertheiralternativeearnings;andwithpensatingpaymentstothelandownerassumedaway,thenewequilibriumundertheconstraintof
:inducingtenantinputtot”,thelandownerwantstopause;however,otherpotentialtenantseknockingathisdoor,,theconditionwithWtisnotimportanttoouranalysis,foratanyratefarmingintensityisincreasedundertheconstraintof.
Thoughthemarginalproductoflandcannotbeconvenientlyderivedinfigure7theeconomicimplicationsofthelegalsharerestrictionforresourc,resourcesaredirectedtotenantfarmsfromownerfarms,fromtenantfarmsunaffectedbythesharerestriction,,thetenantnowworkslongerhours,cultivatesthelandmoreintensively,rreturnsthansimilarresourcesemployedelsewhere.