The Effect of Three--Seven--Five Rent Reduction on the Management Efficiency of Taiwan's Rice Farms

This article explores whether or not the improvement in management efficiency from 1925--27 to 1950--51 was greater in tenanted farms than in self-cultivated farms, focusing on the possible impact of the Three-Seven-Five Rent Reduction reform implemented in 1949. The empirical results, based on the difference-in-difference approach, suggest that the impact is likely to be limited as the change in management efficiency between the two periods for the tenanted farms is highly similar to that for the self-cultivated farms. This finding is inconsistent with Chen Cheng's statement that the reform enhanced tenants' work incentive. Further results show that the impact of the reform on a more general efficiency index, measured by an adjusted profit-cost ratio, does not differ between the two types of farm after farm type, time period, rice type, and farm size are controlled in the estimations. Possible reconcilations for the neutrality of the policy effects could be (1) the reform resulted in a fixed rent tenancy system for the tenanted farms; (2) there was no substantial difference in the production function, factor prices or price of product faced by the two types of farm after the reform; and (3) the reform did not interfere with the management entitlement of the tenanted farms.