AGRARIAN LAND TENANCY IN PREWAR JAPAN: CONTRACT CHOICE AND IMPLICATIONS ON PRODUCTIVITY

We study the tenancy contract choice and its impact on productivity in the prewar Japanese agriculture, where a unique contractual form, the rent-reduction contract, was predominant. Theoretically, this contract is more efficient than share tenancy or fixed-rent contract in terms of provision of incentives and risk-sharing, and thus raises the question of why such an efficient contract was uncommon outside Japan. We argue that transaction costs on the execution of rent reduction were the key element in the adoption of this contract. In prewar Japan, local communities played some role in governing the process of rent reduction and mitigated such costs. Thus the study proposes transaction costs and institutions as additional determinant of tenancy contract choice. We also find that higher prevalence of tenancy was associated with lower average rice yield at the prefectural level and such correlation was stronger in prefectures with a greater proportion of share tenancy.