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).