LAND TENANCY, RENT, AND THE OPTIMAL TERMS OF TRADE BETWEEN INDUSTRY AND AGRICULTURE

IN this paper, first, we shall present a theory of rent in the agricultural sector characterized either by fixed-rent or by share tenancy of land (section I). Then we shall study some implications of this theory of rent. Specifically, it will be observed that the average product of land would tend to be smaller with a peasant farmer than with a fixed-rent or share tenant (section II). Furthermore, if the tenant consumes agricultural as well as non-agricultural products, it will be found that there is a major dilemma in determining the optimal terms of trade between agriculture and industry (non-agriculture). For the terms of trade which respectively maximize (a) the tenant's utility function, (b) the tenant's income, (c) the total agricultural production and rent, and (d) the marketed surplus of agricultural goods to be exchanged for industrial goods, are usually all different from each other. We shall, however, see that they may coincide only under a very restrictive condition (section III). I. A tenant's equilibrium and the rent Suppose that land is homogeneous; and that the production function is homogeneous of degree one in land and labour. The members of the tenant family are assumed to distribute the land, whatever it may be, equally among themselves for cultivation. Each member will be called a tenant. The amount of land per tenant thus being given, production depends only upon labour as follows: where q is output and I labour. The marginal product of labour, by assump-tion, either (i) becomes zero for a finite labour (I), with a maximum output q; or (ii) approaches zero asymptotically.1 In other words, either q = ma,xq(l) = q(l), and q'(l) = 0, (2) or limg-'(Z) = 0. (3) Z->co The tenant has a utility function as given by u = u(xu x2) (4) where u is utility, and xx and x % are the quantities of respectively agricultura