In this case we see the fermiers,a third party,interposing between landlords and tenants to provide a more certain income for the former.[17] To my knowledge,no similar arrangement existed in China,though another practice prevailed（see next section）.In Japan,share tenancy has been rare;and,at the same time,a compulsory crop insurance system has been enforced.[18]
2.In China,share tenancy reportedly was more frequent in the wheat region than in the rice region.Taking the hectare yield data of wheat and rice crops in Taiwan,we find significantly higher proportional variances for wheat than for rice.This is shown in table 1.Owing to the lack of price data,only the vari-ances of physical output are computed,although value of output would be a more appropriate measure.
In table 1,
,where Xiis the hectare yield in kg.,and n the number of years.The higher frequency of share contracts among wheat crops appears to be a universal phenomenon.[19]
3.According to three independent surveys conducted in China（1930-35）,share rent is generally slightly higher than fixed（crop）rent,[20] and this premium may be regarded as a return to the landowner for risk bearing.
Let me summarize.The postulate of general risk aversion or the minimization of transaction costs,taken separately,do not explain well the observed coexistence of several forms of contracts.For this reason I use both,and the choice of contracts is determined by weighing the gains from risk dispersion and the transaction costs associated with different contracts.Two factors appear to be important in explaining different patterns of contractual choices in different localities.First,different physical attributes of crops and types of climate often result in different variances of outputs in different agricultural areas.Second,different legal arrangements,such as compulsory or subsidized crop insurance,affect the variances of income as well as affecting transaction costs for the contracting parties.An examination of some contractual details in the next section will suggest a third factor:different market arrangements also affect the choice of contractual forms.
[1].If only outright transfers exist for all resources,"owner"production will exist for all firms.Contracting for outright transfers does not concern us here.
[2].See Ronald H.Coase,"The Nature of the Firm,"Economica（November,1937）.
[3].Portfolio selection is a complicated subject.The two major theses that have been advanced center on anticipated changes in the general price level and on the aversion of risk.Transaction costs may imply a third.
[4].While this concept has the advantage of treating risk as a measurable quantity that can be conveniently applied to observations,it also has some theoretical difficulties.See,for example,Jack Hirshleifer,"Investment Decision under Uncertainty:Choice-Theoretic Approaches,"Quarterly Journal of Economics（November,1965）.
[5].Transaction costs may also depend on other factors,such as the number of participants and transactions,which I shall not explore here.Changes in prices and innovations will also affect the costs of transactions.See,for example,Theodore W.Schultz,Transforming Traditional Agriculture（New Haven:Yale University Press,1964）,chap.11.
[6].An analysis of market information is available in George J.Stigler,"The Economics of Information,"Journal of Political Economy（June,1961）.
[7].See Harold Demsetz,"The Exchange and Enforcement of Property Rights."Journal of Law and Economics（October,1964）.Demsetz's work constitutes an important reinterpretation of Francis M.Bator,"The Anatomy of Market Failure,"Quarterly Journal of Economics（August,1958）.
[8].Similar arrangements are found in consumption.For example,in apartment rentals the cost of utilities is frequently"paid"by an amount added to the apartment rent;restaurants serving buffets allow customers to eat as much as they please after paying a lump-sum cover charge.
[9].Marginal inequality within a firm,as in the case of lump-sum charges,may also result in marginal inequalities among firms.For example,if the same water resource in other uses is under a contract that stipulates a unit price,the marginal product of water under the lump-sum charges will be lower than that elsewhere.
The marginal quantities under discussion are those which would be equal at every margin should transaction cost be zero.If we ignore corner solutions（as implied in the example of lump-sum charges）,it is possible to define a different set of marginal quantities by incorporating transaction costs in such a way that a different set of marginal equalities could be obtained.
[10].For the situation in China,see J.L.Buck,Land Utilization in China（Chicago:University of Chicago Press,1938）,p.198.For Japan,see R.P.Dore,Land Reform in Japan（London:Oxford University Press,1959）；for other parts of Asia,see sources cited in chapter 1,notes 10 and 14.
[11].See chapter 2.Samples of share contracts obtained from China（see next section）are consistent with this statement.
