The Economic Nature of the Permanent Tenancy

Abstract

The origins of permanent tenancy may indicate that the permanent tenant right is not only a right for permanent tenancy but also a partial property right of land, giving it independent market value and the ability to be transacted without the consent of the landowner. Permanent tenant rights (or surface land rights) and land property rights (undersurface land rights) form two types of rights that divide the same land. The difference in the two types of rights is the difference in the concrete rights and the obligations that each bear. The owner of undersurface land rights needs more transactions with governments, whereas the owner of surface land rights needs to put more resource into agricultural operations. This type of division plays an important role in realizing the comparative advantages through behavior that enforces land property rights. When land rent is fixed, the permanent tenant farmer can harvest all of the income generated by his additional inputs, giving him incentive to improve land capability and farming equipment. Therefore, the boundary between the permanent tenant and the landowner would change toward expanding the rights of permanent tenants. Additionally, permanent tenants are those who in fact control the land and its outputs, have advantages implementing property rights, and have caused the ratio of actual land rent collected by landowners to nominal land rent to decline in the long term. The characteristics of permanent tenancy are similar to those of land institutions that currently exist, and further reform should make advancements toward purer permanent tenancy.

Acknowledgment to Gao Wangling, Zheng Zhenyuan, Tan Shuhao, Yang Xiaowei, and Liu Yejin for their constructive comments on the draft version at the Unirule Academic Bi-weekly Forum.

Translated from Research of Institutional Economics (《制度经济学研究》), Volume 46, Issue 4, 2014.