Market Failure and Japanese Farmland Rents

Authors

  • P. J. Dawson

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    • Phil Dawson is Reader in the School of Agriculture, Food and Rural Development, Newcastle University, Newcastle upon Tyne, NE1 7RU, UK. E-mail: P.J.Dawson@ncl.ac.uk for correspondence. The author is grateful to the Editor and two anonymous referees for comments on an earlier draft of this paper.

Abstract

Since the early 1950s, Japanese farmland rents have been regulated and a consensus emerged that rent control led to market failure. Hypothesising a rent-formation model where rents are determined by prices, this paper estimates a threshold autoregressive model which integrates three tests of market failure, namely, inefficiency, bias and asymmetry. There are four results. First, a long-run relationship exists between rents and prices, and the Japanese farmland rental market is efficient. Second, the rent-price elasticity is unity and the market is unbiased. Third, rents are Granger-caused by prices which supports the rent-formation model. Fourth, asymmetry exists where more rapid error-correction occurs immediately after policy reform when rent growth exceeds price growth by 3.6% or more, and rent control has benefitted tenants.

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