[8].JCRR,"AnnualReports,"p.33.AsofJune30,1951,184caseswerelistedunder"ToBeSettled."Itisimpossibletodeterminetheexactnumberofillegalpensatingpaymentswhichoccurred.Divergencesexistindifferentsources.Closerinspection,however,revealsthattheirdifferencesarelargelysuperficial.Theydifferintheircriteriaofcounting:onesourcecountsallclericalerrorsinleasecontractsasillegal;anotherdisregardsthemasimmaterial.Thecasescitedabovewerethoseinwhichpensatingpaymentshadactuallyoccurred.ThegreatestdifferenceisseeninparingJCRR,"AnnualReports,"p.33,andTPLB,"Implementation,"pp.24-25,table5.Inthelatter,illegalpractices(includingtenurerearrangements)amountedto41,994cases(thehighestnumberonrecord),butover80percentofthesecaseswereduetoimproperwordingsorsignaturesusedinthecontracts.Furthermore,ifseveralerrorswerefoundinonecontract,allwerecounted.Theseclericalerrorsareunderstandablebecausemostofthetenantswereilliteratesandwerepronetomakeerrorsonthewrittencontractsnowofficiallyrequired.TheJCRR,ontheotherhand,didnotconsidertheseassubstantialanddisregardedthem.
[9].Chen,Records,p.30.
[10].Seeibid.,andJCRR,"AnnualReports,"pp.29,32,table6.
[11].JCRR,"AnnualReports,"p.32,table6.Someofthesegrantedcaseswerearesultofofficialerrors(ibid.,p.28).
[12].Ibid.Thetotalareaofprivatelandamountedto672,360hectares.Beforethesharerestriction,56percentofthesewereundertenancy.Seechapter7ofthisstudy.
[13].TPLB,"Implementation,"pp.24-25,table5.
[14].SeeChen,Records,p.41;andJCRR,"AnnualReports,"p.27.
[15].SeeChengChen,AnApproachtoChina'sLandReform(Taipei:ChengChungBookCo.,1951),p.24.
6.AllocationEffectsofRentalShareRestriction:TheHypothesisofIncreasedFarmingIntensity
IntheprecedingchapterweconcludedthatoffsettingcontractualrearrangementsthroughwhichtheinitiallycontractedresourceallocationandinedistributionmayberestoredoccurredonlysparinglyinTaiwanaftertherentalpercentagereductionin1949.Oneexplanationistheprehensivelegalrestrictionsandenforcementoflaw.Anotherexplanation,whichwillbeexploredinthischapter,isanassociatedincreaseinoutputunderthesharerestrictionwhichpartiallypensatesthelandownerforreducedinefromland.Inpractice,thelandownermaybepensatedbothbyanillegalpensatingpaymentandbyanincreaseinoutput.
Aswederiveherethehypothesisofincreasedfarmingintensity,foranalyticalconvenienceletussupposethatunderthereductionofthepermissiblerentalpercentage,noillegalpensatingpaymentismade.Theimplicationsofthishypothesiscanbesummarized.Underthesharerestriction,nonlandresourceswillbedirectedtotenantfarmsfromallotheruses.Themarginalproductoflandinthesefarmswillthenbehigher,andthemarginalproductsoftenantinputswillbelower,thanthoseofsimilarresourcesemployedelsewhere.Inotherwords,themarginalproductsoftenantinputswillbelowerthantheassociatedmarginalopportunitycost.
Supposethemarket(unrestricted)rentalpercentageof70percent(r=0.7)isrestrictedbyregulationto40percent(
=0.4).Thelandownernowinthetruesensereceives40percent,r,oftheannualyieldwithnootherformofpensation.Thetenantisthusgettingfromthetotalannualproducttwicehisinitialshareof30percent.Willanexistingtenant,therefore,offertomitmorefarminginputs?Andifso,willthisleadtomoreefficientresourceuse?
Theunrestrictedmarketrentalpercentage,recall,isreachedwhenthemarginaltenant(nonland)costoffarmingequalsthemarginalproductoftenant(nonland)input.Thus,anyfurtherincreaseinnonlandfarminginputwillnotpaythetenant.Toillustrate,suppose,withtherestricted
=0.4,thetenantmitsanadditional$10offarminginput,thecorrespondinggaininproductwillbelessthan$10.Therefore,thetenantwillreceiveanadditionalineoflessthan$6withthereducedrentalpercentage(whichisobtainedbyusingtheamountoflessthan$10times1—
).Indeed,thetenantwouldnotvoluntarilyoffertomitadditionalfarminginputtotheareaoflandhealreadyisusingevenifthelandweregiventohim.
Bythesamereasoning,thelandownerwillnotmitmorefarminginputhimselfafortiori.Underthesharerestriction(constraint),however,petitionwillrequirethetenanttodoso.Forexample,supposebeforetherestrictionthetotalyieldis$200,andwithr—0.7thetenant'sineis$60,anamountwhichequalshisalternativeearning.Withtheimpositionof
=0.4,thecurrenttenantwillreceive$120,or$60overhisalternativeearning.Thistenant,inordertokeeporgetlandwilloffertomitanadditionalfarmingcostofatleast$60.Toillustrate,supposethetenantagreestomitanadditionalnonlandfarmingcostof$60,theamountoverhisalternativeearningresultingfromthesharerestriction.Thecorrespondingvalueofmarginalproductwillbelessthan$60—say$40.Ofthis$40theownerwillreceive$40×
,or$16,andthetenantwillreceive$40×(1-
),or$24.Tothetenant,this$24isanamountoverhisalternativeearning,whichtheownercanagaininducethetenanttoinvestinfarming.