The theory of tenancy fits nicely into a game model.

Preliminaries

[Institutional precondition]: (Delimitation of property rights) The rights to use, earn income, and transfer certain property (or resource in other contexts), such as land, labor, and capital, shall be exclusively assigned by law to allow for any economic analysis.

[Nature of contracts] Every transaction involves a contract, which is a transfer of property rights among individual contracting parties.

[Share contracting] Share contracting is multiple individual parties combining privately owned resources for the production of certain mutually agreed outputs, the actual outputs to be shared according to certain mutually accepted percentages as returns to the contracting parties for their productive resources forsaken.

[Efficient use of resources] At societal level, efficient allocation of existing resources necessitates equal marginal products of each resource across all sectors it gets used, measured by the interest rate.

Game

[Share tenancy] Since landlords can stipulate labor/nonland input with minimal transaction cost, e.g. by measuring production, share tenancy can be seen as an optimization of land rent (by the landlord) with two variables: share and nonland-to-land factor ratio, as formalized in {Cheung1969 2.B}.

Contracts:

  1. Fixed rent
  2. Fixed share
  3. Wage ("exit" of tenant)

Owner-farmer ("exit" of landlord)

Implementation (of contracts)

Zero transaction cost

costs of negotiation and enforcement.

Coase theorem

Transaction cost

Rent control

[Rent control] With land rent capped, if not seeking compensating payments or tenure rearrangement, landlords will instead maximize production to partially recover lost rent, and tenants will comply due to competition.

[Inefficient use of labor] As more farming resources are directed to tenant farms, the marginal products of tenant inputs will be lower than those of similar resources employed elsewhere. ... The discrepancies in the marginal products of resources (labor) in the various sectors (agriculture/non-agriculture) imply economically inefficient use of the existing resources of the society.

[Inefficient use of land] Under rent control, the marginal product of land is higher on tenant farms than elsewhere.

Theorem

[Production theorem of property right assignment]: For any production function requiring resource inputs h and t, if the right to a portion of the income from h, however small, is not appropriated or exclusively assigned, the ratio t/h will rise under competition, implying a fall in the marginal product of t and a rise in the marginal product of h; as the unassigned income from h increases, the marginal product of t will accordingly be lower, and may become negative when the entire income from h is not assigned to any individual party.