Volume 5, Issue 1 -

This paper was prepared for "The Theory of Share Tenancy: After 50 Years," a conference organized by The Ronald Coase Center for Property Rights Research at the University of Hong Kong, November 24-26, 2017. The paper first appeared in Chinese as a series of column articles in ifeng.com (凤凰网). The author traces the complex intellectual origins of The Theory of Share Tenancy and an adventurous career that followed.

The Theory of Share Tenancy by Steven Cheung, first published as a PhD thesis 50 years ago, was an important watershed study on the economics of contracts. It contained the first formal demonstration of the Coase Theorem, linked the concepts of property rights and transaction costs, laid early foundations for the future economics of contracts, and can even lay claim to originating the idea of a risk/incentive tradeoff in contract design. This essay examines Cheung's key contributions in Share Tenancy , and considers reasons for its somewhat limited legacy outside of China.

Compared to the rest of the world, farmers in Brazil rely relatively little on tenant contracts. In agriculture, career mobility is associated with moving up the agricultural ladder from working for wages to renting to owning (Alston, L.J., and J.P. Ferrie. 2005. “Time on the Ladder: Career Mobility in Agriculture,” 1890-1938 The Journal of Economic History 65(04): 1058–1081. Cambridge University Press). Alone, this fact may not present a puzzle, but coupled with the large number of landless peasants and large amounts of unused land, the question is, Why don't landowners with unused or underutilized land negotiate land rental contracts with the landless.? In Brazil, this avenue for advancement has been hurt by a reluctance of owners to rent in areas experiencing land conflict. The lack of rentals is an important issue because Brazil is geographically a large country, roughly the size of the continental United States and has an expanding agricultural frontier, some of which is cutting into the Amazon. If the lack of land rentals is pervasive across Brazil and also signals inefficiency in production, the total magnitude is likely to be large when summed across the country.

This paper introduces a game framework for farmland rent contract choice which incorporates the characteristic uncertainty about the quality of agricultural factors and heterogeneous agricultural attributes matching with rural land leasing contract and the dynamic contracting behavioral equilibrium. The game theoretic model shows that the farmland rent sharecropping is a Pareto optimum contract, that the different farmland use contractual arrangement will match with specific agricultural factors combination between farmland and labor, that sequential rational tenants will make the game transfer from Nash Equilibrium to Perfect Bayesian Equilibrium. Our field survey data of China between 2014 and 2015 is consistent with our theoretic hypothesis. The empirical results indicate that the tenant's age has significant negative effect on share contract, that social security, soil fertility and the number of plots have significant positive effect.

During the transition period from a planned economy to a market economy in the 1990s of China, there was a considerable accrual of deferred payment, and default due to inferior enforcement institutions. This is a very common phenomenon in the transition economies at that time. The Chinese government attempted in vain to deal with this problem by legislation of related institutions and administrative control. Interviews with home electronics appliance firms revealed that firms were able to cope with this problem by adjusting their sales mechanisms (found four types), and the benefit of institutions was limited. A theoretical analysis here found that spot and integration are inferior to the two contract mechanisms in terms of cost and price: a contract with a rebate on volume and prepayment against an exclusive agent can realize the lowest cost and price, and maximize social welfare. Hence, through Bertrand price competition, any of two contract mechanisms is selected to dominate the supply behavior. The empirical part showed that sales contract mechanisms employed by the brand gradually converged into the one with a rebate on volume an against exclusive agent, as it realized the lowest cost. A firm who initiated this mechanism gained the largest share in the market. The competition is the driving force of the convergence of mechanisms and improvement risk management capacity.

Accompanying the rise of China in the world economy, intellectual property right protection comes to be the major issue apropos of international trade disputes in recent years. This paper, adopting the transaction costs paradigm and applying the contract theory, investigates and examines a form of contractual protection effectuated by market forces. The study shows that the contractual arrangement constituted by joint venture agreement with offsetting contractual arrangement is a form of intellectual property right protection driven by market forces. This contractual arrangement, though arising under the state policy of joint venture control, functions as an effective protection of intellectual property rights by fully pricing and protecting such hardly enforceable rights.

There cannot be growth in the v. Neumann growth model where active firms produce inputs and outputs for each other and balance their budgets.

What The Theory of Share Tenancy did to share tenancy repeats what Coase did to Pigovian tax. The Theory of Share Tenancy pioneered the empirical study of transaction costs and property rights.