Approximately half of Iowa's farms are operated under some form of leasing arrangement. The terms of these leasing arrangements play a vital role in determining how resources are allocated on these farms. Imperfections in leasing systems may reduce returns to landlords and tenants and restrict the total amount of product available to society. Under many leases in use, the farm plan which maximizes returns to the landlord's resources may not be the optimum farm plan from the tenant's standpoint, and vice versa. While the conditions of resource efficiency are not attained on many owner-operated farms, the leasing arrangement, ideally, should not contribute further to inefficiences in resource use.
Within an owner-operated farm, then, an optimum allocation of the owner's resources is reached when these resources are organized in a manner to maximize his profits. The problem is more difficult on rented farms, however, because specialized resources are separately furnished by the landlord and tenant. Resource efficiency on rented farms is achieved only when the combined resources of the landlord and tenant are organized into a farm plan which maximizes profits to their combined resources. An efficient lease should permit and encourage the adoption of this single farm plan by the landlord and tenant. In other words, an efficient lease is one which allows the same farm plan to be most profitable for both the landlord and the tenant; this plan should also be the one which is optimum for the farm as a whole, without regard to resource ownership. In any case where the lease leads to a plan which is most profitable for one party but not for the other, imperfections exist in the lease.
Heady, Earl O.; Dean, Gerald W.; and Egbert, Alvin C.
"Analysis of the efficiencies of alternative farm leasing arrangements (An application of linear programming),"
Research Bulletin (Iowa Agriculture and Home Economics Experiment Station): Vol. 32
, Article 1.
Available at: https://lib.dr.iastate.edu/researchbulletin/vol32/iss445/1