Earl O.Heady and Earl W.Kehrberg conducted a survey（Iowa,1949）with seventy-four selected pairs of cash-lease and share-lease farms.They found"no significant differences between share and cash leases"（p.661）for the input intensities of farming.The authors,however,refused to accept the conflict between their theory and findings,and resorted to other factors which"might account for this lack of difference"（pp.661-62）.With the tax approach,they had concluded that,in theory,farming intensity under share rent is necessarily lower than under cash rent（at pp.658-60）.See Heady and Kehrberg,"Relationship of Crop Share and Cash Leasing Systems to Farming Efficiency,"Research Bulletin 386（Iowa State College Agricultural Experiment Station,May,1952）,pp.635-83.
[16].Buck,Chinese Farm Economy,p.156.No numerical data are provided.
[17].See also Legislative Yuan,Statistical Monthly（1930）,2,5.
[18].This is shown earlier in this section.For some indirect evidence from Taiwan,see chapters 7 and 8.
[19].Computed from data in Sino-American Joint Commission on Rural Re-construction"JCRR Annual Reports on Land Reform in the Republic of China,"mimeographed（1965）,p.35.
[20].Only a small amount of numerical data has been provided,and examples of landowners holding over one thousand leases are perhaps cases selected to emphasize the concentration of landownership.According to information provided in J.P.Gittinger,"Vietnamese Land Transfer Program,"Land Economics（May,1957）,"before the land transfer program in Vietnam,2,170 persons……have declared total holdings amounting to 976,602 hectares."Given that"the average tenant holding is approximately 2 hectares or perhaps slightly more,"the average number of leases for each of these landowners was over two hundred.
4.Transaction Costs,Risk Aversion,and the Choice of Contractual Arrangements
The analysis thus far has been primarily based on the condition that transaction costs,and in particular the costs of contractual negotiation and enforcement,are zero.The theory of share tenancy thereupon derived shows that,subject to the constraint of private property rights,economic efficiency is the same under various land tenure arrangements.Although transaction costs exist in the real world,the theory succeeds in explaining a class of observations.But the presence of a variety of contractual arrangements under the same constraint of competition poses the question:Why are different contractual arrangements chosen under the same system of private property rights?The purpose of this chapter is to advance,in a rather informal manner,a choice-theoretic approach based on nonzero transaction cost and risk aversion to explain the observed contractual behavior in agriculture.The observations used are largely drawn from the Chinese experience.
If a firm can increase efficiency in production by employing productive resources of more than one resource owner,a contract to combine the resources will obtain.The formation of the contract involves partial transfers of property rights in one form or another,such as leasing,hiring,or mortgaging.[1] These transfers,and the associated coordination of inputs of various factors in production,are costly events.[2] There are costs of negotiating and of enforcing the stipulations of the contract.
Given the state of personal wealth distribution and the portfolios of assets held as private property by resource owners,some owners will seek contractual arrangements with others in combining resources for production.[3] There is a variety of arrangements under which this can be done.At least two reasons may be offered for the existence of different types of contractual arrangements.First is the existence of natural risk,defined here as the contribution by nature or the state of the world to the variance（or standard deviation）of the product value.[4] Given a nonzero variance for the expected output yield（the total income for the contracting parties）,different contractual arrangements allow different distributions of income variances among the contracting parties.Under the postulate of risk aversion,an individual will seek to avoid risk if the cost of doing so is less than the gain from the risk averted.He may avert risk by searching for information about the future（which may not be attainable even at infinitely high cost）,by choosing less risky options when investing（which options include portfolio diversification）,or by choosing among arrangements with which his burden of risk can be dispersed to other individuals-such as insurance and various contractual arrangements.The last is one of our concerns in this chapter.A second reason for the existence of different contractual arrangements is the different transaction costs that are associated with each.Transaction costs differ because the physical attributes of input and output differ,because institutional arrangements differ,and because different sets of stipulations require varying efforts in enforcement and negotiation.[5]
Let me advance the following hypothesis:the choice of contractual arrangement is made so as to maximize the gain from risk dispersion subject to the constraint of transaction costs.I shall develop this hypothesis and apply it to some observations later.
