[12].For the tenant's incentive to use an amount of input less than that stipulated in a share contract,see chapter 3,section C.The adoption of different forms of contractual payment for labor alone owing to"shirking"problems and enforcement costs appears to constitute an important subject which has not been explored.For example,a piece-rate contract will be preferred to a wage contract on an hourly basis if checking output costs less than enforcing input.However,with piece rates the worker is inclined to be"sloppy"and produce products of lower quality.Thus,a piece-rate contract will be less preferable if the physical attributes of the product are such that it is relatively costly to police a specified standard.Similarly,commission payments（as with insurance salesmen）are preferred to other forms when the value of output depends on the intensity of work per sale;"tipping"payments（as in the case of waitresses）are preferred to other forms when the quality of services is significant-in either case,the costs of enforcing"intensity"and"quality"of work appear to be relatively high.
[13].In horticulture,for example,the usual contracts other than owner cultivation are wage or piece-rate contracts.This may imply that in horticulture,owner management involves a lower cost of policing the orchard assets than fixed-rent contracts.On the other hand,one expects that wage contracts would be infrequent when the landholding is large,for high costs of labor supervision would be incurred.
[14].This result is implied in William F.Sharpe,"Capital Asset Prices:A Theory of Market Equilibrium under Conditions of Risk,"Journal of Finance（September,1964）；Jack Hirshleifer,"Investment Decision:Choice-Theoretic Approaches"；and idem,"Investment Decision under Uncertainty:Applications of the State-Preference Approach,"Quarterly Journal of Economics（May,1966）."Risk-exchange"models derived from the current state-preference and mean-variance approaches,with the aid of an Edgeworth-Bowley box,suggest that risk sharing is preferred-if we ignore transaction costs.
[15].For a theoretical treatment of asset prices and risk premiums as determined in the marketplace,see Sharpe,"Capital Asset Prices."
[16].Arthur Young,Travels in France during the Years 1787,1788,and 1789,ed.C.Maxwell.（Cambridge University Press,1929）,p.395,editor's note.
[17].To interpret the existence of the fermiers on grounds of risk aversion alone seems inconclusive.Ronald Coase has pointed out to me that the fermiers resembled the"farmers"in England,who served to collect taxes and postal revenues for the Crown.Coase's explanation for the existence of the English"farmers"is as follows:a collecting agent who is allowed to take the difference between what he can collect and what he has to pay the Crown has a greater incentive to maximize receipts than if he is paid a wage rate for his service.This argument,I believe,is correct,and can be expressed alternatively:transaction costs differ,among other things,because different sets of stipulations require varying efforts in enforcement and negotiation;and for collection a"farming"contract involves a lower cost of enforcement than a wage contract.Thefermier of France may therefore be viewed as a"farming"agent as well as an"insuring"agent.
[18].See Takekazu Ogura,ed.,Agricultural Development in Modern Japan（Tokyo:Japan FAO Association,1963）,chap.13.I have been unable to find the frequency of share contracts in Japan before the introduction of the compulsory crop insurance.
[19].See,for example,J.L.Buck,Land Utilization in China,p.198；and James O.Bray,"Farm Tenancy and Productivity in Agriculture:The Case of the United States,"Food Research Institute Studies,vol.4,no.1（1963）.
[20].See Appendix B;Department of Internal Affairs,Public Reports of Internal Affairs,vol.2（1932）；Legislative Yuan,Statistical Monthly 2,5（1930）；and Shu-Ching Lee,"The Heart of China's Problem,the Land Tenure Systems,"Journal of Farm Economics（October,1946）.
B.Characteristics of Fixed and Share Contracts（China,1925-40）
In this and the following section I shall analyze in some detail the observed stipulations of fixed and share contracts.This will serve not only to clarify the hypothesis that contractual arrangements are chosen to disperse risk bearing and minimize transaction cost,but also to further confirm the theory of share tenancy derived in the last two chapters.I turn to some information from China,roughly from 1925 to 1940.This choice of data is based not only on the availability of information,but also on the fact that during this period in China,some 93 percent of the farm land was held under private ownership.[1] Let me begin by translating a few sample contracts of fixed rent.
Sample a-fixed（crop）rent contract with definite lease duration（Shantung Province）：
Tenant A now leases from landowner B[so many acres]of land at location C.We hereby stipulate,with the presence of referee D,that the annual rent per acre includes[so many catties]of wheat,and[so many catties]of millet,soybeans,and Indian corn.The payment in wheat will be one month after the wheat harvest,and autumn crops two months after the autumn harvest.In a famine year,rental payments shall be adjusted[downward]according to local customs.The duration of the lease is[so many years].[2]
Sample b-fixed（crop）rent contract with indefinite lease dura-tion（Kiangsi Province）：
We contractually establish an iron-sheet[firmly fixed]rent……Regardless of good or bad years,not a fraction of rent can be reduced……In the event that the rental payment is reduced or delayed,the landowner is free to take back the land,together with all existing crops,and to contract a new tenant for cultivation……Furthermore,the landowner shall pay the tenant 20 copper coins for the delivery of every 100 catties of grains.[3]
Sample c-fixed（crop）rent contract with landowner providing nonland farming inputs（Tsinghai Province）：