It is useful to distinguish two types of contractual renegotiation（revision）,though at times one relates to the other.The stipulated terms in any tenure contract in essence specify two things:（a）the state of resource use,or allocation,mutually agreed upon by the contracting parties,and（b）the contracted distribution of income for the parties.To revise（a）through renegotiation for more efficient resource use may benefit all parties to a contract,that is,all parties may gain or lose less.To revise（b）,however,one party must lose.
Consider the contractual renegotiation which entails mainly a reallocation of resources;for example,changes in relative product prices which call for shifts to different crops,or innovations which call for the adoption of new seeds or new methods of cultivation.Renegotiations of this type are largely confined to share contracts,since under fixed rents the tenants are left to make their own decisions on resource use except improvements in land and maintenance of the landowner's assets.In principle,since all contracting parties expect to benefit from the revision,renegotiation can take place at any time and lease termination becomes unnecessary.But different individual knowledge of the market may give rise to difference in opinions as to whether the revision is desirable.A relatively short lease duration is a convenient device which allows resource reallocation in the event of unsuccessful renegotiation.[9] This,together with the more complicated contractual enforcement required for share contracts,explains why durations of share leases are generally shorter than those of fixed rent.[10]
Consider further the contractual renegotiation which entails the revision of income distribution,when one party gains at the expense of the other.It applies to fixed and share contracts alike.Resource allocation may also be affected.For example,changes in relative asset prices of the contracted resources,a cash-rent contract with unanticipated inflation,or decision errors made in the initial contract-which call for a revision of the rental rates-are examples in point.Since some party must lose when the initial distributional terms are revised,that is,the gainer either cannot or will not fully compensate the loser in making the revision,lease termination（hence,the choice of an appropriately short duration）is essential.[11] Again,this would not be necessary if transaction cost were zero（even if unanticipated events occur independently）.In the absence of transaction cost,a contract would be designed to allow day to day changes in rental payments;within any lease duration,the distribution of income would not be held fixed throughout.
[1].These percentages are computed from Department of Real Estates,China Economic Yearbook（Shanghai:Commercial Press,1935）,pp.G101-4.A similar investigation conducted in the same localities ten years earlier yielded an almost identical distribution（ibid.）.
[2].According to a survey conducted by the Executive Yuan（Changes in Land Rights）,covering fourteen provinces in China（1937）,7.5 percent of the lease contracts were dismissed in that year.But,since inflation began in the same year,the cited percentage might be higher than that of preceding years.For the rise in prices owing to the Sino-Japanese war,see Chang and Wang,Questions of Farm Tenancy,chap.9.
[3].See sources cited in chapter 1,notes 10 and 13.
[4].Armen A.Alchian has argued that the desire for security leads to"long-term"contracts.But his analysis is based on a property right system with is not private,where the private cost of acquiring security is relatively low.See his"Private Property and the Relative Cost of Tenure,"in The Public Stake in Union Power,ed.Philip Bradley（University of Virginia,1959）,pp.350-71.
[5].Two independent surveys（China,1921-24 and 1935）reveal that,among tenant farms,landowners owned about 60 to 70 percent of the housing assets;tenants owned about 75 percent of the draft animals and 95 percent of the farming equipment.The total values of nonland assets on owner and tenant farms were roughly the same.See National Government,Statistical Analysis,pp.99-116.
[6].Chiao,Study of Farm Villages,p.261.For similar observations see National Government,Statistical Analysis,pp.56-58；and China Economic Research Department,Source Materials,pp.84-89.
[7].I apply here the thinking in Ronald H.Coase,"The Problem of Social Cost,"Journal of Law and Economics（1960）.
[8].Legal records which cover fifty-six prefectures in six provinces（China,1934-35）reveal a total of 124 tenancy disputes（mostly in rental payments）over a one-year period.Even though the total number of tenant contracts is not available,the number of disputes brought to court appears to be so small that one suspects many more never reached court.Over two-thirds of these recorded cases ended in tenancy dismissals,together with payment settlements.See Department of Real Estates,China Economic Yearbook,（1935）,pp.G118-20；and（1936）,pp.G143-44.
[9].With lease termination,for example,a share tenant who alone wants changes in the production plan can request a fixed-rent contract,purchase the land outright,or seek tenancy with another landowner.Without lease termination,further negotiation may still take place if one party who wants the revision pays the reluctant party an amount to make the revision"convincing."
[10].Localities with higher frequencies of share leases（China,1934）were associated with higher frequencies of short-term leases.See National Government,Statistical Analysis,p.43,tables 20 and 21；and p.59,table 26.
[11].Given an unexpired lease which fixes the rental rate,changing economic conditions may lead to a redistribution of income.But the efficiency of resource allocation may not thereby be hindered.
D.Concluding Remarks
