Therighttoeachprivatelyownedresourceis,bydefinition,transferableandexclusivelydelineated.Rightstoresourcesinvestedinlandandotherassetsarenoexception.Intheforma-tionofaleasecontract,theparticipatingresourceownersarefreetoacceptorrejectthecontractualtermsbeingnegotiated.Again,thechoiceofthedurationofthecontractisnoexception.Thustherelevantquestionhereisnotwhethera"short-term"leaseisinefficient;therelevantquestioniswhydifferentleasedurationsarechosen.
Inaworldunplicatedbytransactioncostsandrisks,inwhichtherighttotheinegeneratedbyprivateinvestmentcouldbecostlesslysecuredandtransferred,andinwhichchangesincontractualstipulationscouldbecostlesslynegotiatedatanytime,thedurationoftheleasebeesirrelevantanditsex-plicitstipulationsuperfluous.Withtransactioncostsincluded,Iarguethattheleasedurationwillbechosentominimizethesecosts.Todoso,itisconvenienttoseparatethecostadvantagesof"long"and"short"leasedurations.
TheChoiceofRelativelyLongLeaseDuration
Arelativelylongleasedurationischosentoreducethecostoftransferring（transacting）tenantassetsattachedtoland.Thereexistdifferencesinphysicalattributesofcapitalassetswhichinvolvedifferentmovingcostsatleasedismissal.Forexample,awaterbuffaloownedbyatenantforgraingrindingiseasiertomoveatleasedismissalthananimprovementinwaterirrigationmadebyhim.Ofcourse,thelandownercouldhaveinvestedinthewaterirrigationhimself,orhecouldpurchasethetenant'smittedimprovementoutright.[5]Butwhenassetsattachedtolandareownedbythetenant,disputesmayariseintheeventoftenancydismissal.Aleasewithasufficientlylongdurationmaybeethepreferredoption.
However,thecostofmovingthephysicalassetisnotnecessarilytherelevantcosttoconsider.Thetenant'spropertyrighttohismittedinvestmentmaybetransferred,eithertoathirdpartyortothelandowner,atamarketprice.Theproblemisthatsuchapricemaynotexist,orcannotbeobtainedinashortperiodoftime,duetotransactioncosts.Oneneedonlypointoutthatthedepreciatedvalueofausedassetiscostlytoevaluate;thelandownermaychoosetoselecthisnewtenantinsteadofallowinganypartywhopurchasestheassettotakeoverthelease.Also,otherinformationproblemsexistinthemarketplace.Anappropriatelylongleasedurationwillthusreducedisputesandtheanticipatedcostoftransferringthetenant'spropertyright.Thischoice,however,canbemadeonlyattheexpenseofsomecostadvantagewhichashorterleasedurationprovides.
TheforegoingdiscussioncanbesupportedbyobservationsontheperpetualleaseinChina:
Underperpetualleasesthelandownerholdsownershiprighttothe[bottomof]land,andthetenantownstherighttothesoil……Thesetworightsareseparate.Theoccurrencesofperpetualleasesareconfinedtothefollowing:（1）thetenantexploited[privatelyowned]wastelandanddevelopeditintofarmland,thusgainingaperpetual[ownership]righttothesoilfromthelandowner.（2）Permanentimprovementsinlandmadebythetenant……suchasbuildingupwater-conservingdevicesinotherwisesandyfields……（3）……wherelaborisscarceandlandplentiful,thelandownersattractedtenantsfromafarbyofferingtheperpetualrighttotill[thesoil]……（4）Thetenanthadpaidalump-sumpaymenttoobtaintheperpetualrighttotill……And（5）thepeasant,wheninneedofmoney,soldtheownershiprighttothelandbottombutretainedtherighttotillthesoil.Sinceownershiprightstothebottomandsurfaceoflandareseparate,boththelandownerandthetenantcanselltheirrightsfreely,withouttheconsentfromeachother.[6]
Ineveryinstance,thetenant'sassetattachedtoland（forexample,therighttothesoil）isphysically"permanent."Withtheperpetualleaseandthecontractedtermsineffect,thelandownermaynotarbitrarilyraisethe"bottom"rent（oruseotherdevices）todrivethetenantaway.Yetsuchaleasedurationwouldnotbenecessaryiftransactioncostswerezero:Ifthe"bottom"and"surface"rightswereclearlydelineatedandcostlesslyenforcedasprivate,andiftheserightscouldbecostlesslytransferred,therewouldexistmarketpricesfortheserightsatwhichtransferscouldbeexecutedatanytime.[7]Thustherewouldbenoneedforlongleasedurationstoprotectthe"immobile"investmentsofthetenant.Thesamecanbesaidforotherassetsattachedtoland.
TheChoiceofRelativelyShortLeaseDuration
Theadoptionofarelativelylongleasedurationinvolvesforgoingsomecostadvantagewhichashorterdurationprovides.Whenassetsattachedtolandownedbythetenantaretobeexhaustedinashortperiodoftime,orwhenthelandownerprovidesallthe"permanent"assets,arelativelyshortleasedurationreducesthecostsofenforcingthecontractedtermsandofrenegotiatingtheseterms.
Whenacontractisformed,thecontractingpartiesmaylacksufficientinformationoneachother'sreliability.Withinaspecifiedleaseduration,theviolationofthecontractedtermsbyeitherpartymaycallforincreasingenforcementefforts,orforrevokingthecontractbeforeitsterminationdatethroughcourtactionorothermeans-alltobedoneatsomecost.Thechoiceofashorterleaseduration,whichfacilitatestenancydismissal,willreducethesecosts.Aswasnotedatthebeginningofthissection,however,thefrequencyoftenancydismissalswasfarlessthanthatofshort-termleases,suggestingthatmostterminatedleaseswererenewed.Availabledatashowthatthefrequencyofleasedismissalscausedbyrentaldisputeswaslow.[8]Iconjecture,therefore,thatshort-termleasesarechosenmoreasadevicetofacilitatecontractualrenegotiationthanasadevicetoreducethecostsofenforcingthecontractedterms.