Differentiated rent 1. Land rent and its types: absolute and differential rent I, II

Based on the sources of formation, two types of differential rent are distinguished:

• Differential rent I. Provided through the cultivation of lands with high and medium yields, as well as the favorable location of plots in relation to markets and transport routes.
• Differential rent II. It is provided at the expense of additional capital investments in the land plot.

This form of additional income appeared due to the peculiarities of pricing in agriculture. The cost of production in this industry is determined by the economic indicators of the worst sites, since the possibilities of the best and average are not enough to meet the needs of the market.

Differential rent - the difference between the high social price of agricultural production in poor areas and the low individual price in the best and average.

Causes and conditions of formation

Additional income from the use of agricultural land is formed due to the presence of monopoly rights of owners or tenants. The plots are objects of management. Economic entities receive income from them in the form of land rent, while others do not have such an opportunity.

The main conditions for the formation of differential rent of both forms are as follows:

• limited land resources global and local;
• significant differences in the natural level of soil fertility;
• different remoteness of agricultural lands from sales markets and main transport routes.

The economic law of value formation and pricing for agriculture has a number of features. The factor is also one of the reasons for the formation of differential rent. The withdrawal of additional profit occurs in the form of increased rent or lease payments, as well as due to low zonal prices for agricultural products.

The land resources of the planet are limited, and it is impossible to create them additionally.

The growing demand for products and agricultural raw materials makes it necessary to use not only the best, but also the average and worst plots for their production. The market or social value of this product is determined based on the indicators of land with low fertility, remote from markets. In the second case, there is an inevitable increase in transport costs for the delivery of the crop.

Peculiarities of differential rent II

Additional profit from investments in land became possible as a result of the use of innovative agricultural production technologies. Differential rent II is the result of the process of intensification of agriculture. An increase in its norm and size is determined by the level of productivity growth due to additional investment and overcoming the law of diminishing land fertility.

This type of differential rent initially goes to the economic entity. When the lease agreement is renewed, part of the excess profits goes to the owner of the land plot. The latter, using his monopoly right, raises the rent. As a result, there is a redistribution of additional income.

In the agrarian and mining sectors of the economy, special rent relations arise and a special type of rental income is formed - land rent.

Rent relations are relations between the owner of the land and the tenant - the user of the land on the distribution of profits.

Economists define rent as the price paid for the use of land and other natural resources, which are strictly limited. It is the unique conditions of supply of land and other natural resources - their fixed amount - that distinguishes rent payments from wages, profits, and loan interest.

Rent at the place of formation in various areas of the economy is: agricultural, including food, mining, including oil, gas, and there is also forest, water, etc. rent.

By the nature of education, rent has 3 main forms: differential, absolute and monopoly.

Differential rent I in its content is an additional profit, which is formed in connection with the use of the best and average lands.

In agriculture, different plots of land are not the same in terms of fertility and location relative to markets. In the extractive industries, mineral deposits are different in terms of productivity, the depth of the layers in the bowels of the earth and the location of the deposits. All these unequal natural, climatic and transport-geographical conditions can be reduced to differences in the quality of land, highlighting the best, average and worst among them. In this regard, the individual costs and individual unit prices of the agricultural product, as well as the product of the extractive industries, will be different. But these products will be sold at a single market price. A feature of the formation of market prices for agricultural products and extractive industries is that they are guided by the individual level of production costs, which is formed in the worst natural conditions. After all, the number of the best and middle lands is limited, and they cannot satisfy the demand for food products and raw materials. Therefore, there is a demand for products from the worst quality sites. On the best land in terms of fertility and location, in such a situation, tenants - users receive additional profit, which takes the form of differential (difference) rent.

Differential rent is the difference between the individual price of production in areas with monopolized natural power, and the price prevailing in the market.

Differential rent exists in two forms - differential rent I and differential rent II.

Differential rent I is formed in connection with differences in land fertility and location (lands favorably located in relation to markets). Consider, using a simple numerical example, the formation of differential rent I (according to fertility and location):

Table 1. Formation of differential rent I

Land plots capital in money. single Avg. approx. arena-

dater Prod. in centners Individual. production price

Market price pr-va Differ. rent I (additional profit)

All prod. Unity. prod. Unity. prod. All prod.

I account. - better 50 10 4 60 15 30 120 60

II account. - Wednesday 50 10 3 60 20 30 90 30

III account. - thin. 50 10 2 60 30 30 60 -

From the table it follows that in the best and average sections, additional profit arose as the difference between the price of all products sold and its individual price. This additional profit takes the form of differential rent I, falling into the hands of the landowner.

The formation of differential fertility rent can be visualized on the basis of graphs of average and marginal costs. Considering that farms operate in a perfectly competitive market, the line of demand for the farmer's products is horizontal. Suppose that three plots of land - I, II and III - are different in fertility. The best site - I (graph a), II (graph b) - medium and III (graph c) - the worst in terms of fertility.

As can be seen from the graph in the first site (a), where fertility is highest (with the same costs of all factors of production in all three sites), the average costs are the lowest. This means that the farmer of plot I will receive a differential rent equal to the area of ​​the shaded rectangle. The farmer from the second plot, whose average cost is higher, will receive a smaller amount of rent (Fig. b). And the farmer from the third plot will only reimburse his costs. The size of the differential rent on its site is equal to zero (Fig. c).

Differential rent II is formed as a result of additional investments of capital in the same land area (for the purpose of melioration, technical improvement of agricultural processes). This increases the fertility of the soil, resulting in increased yields. When selling products at the same market prices (we focus on the worst conditions), additional profit is formed. It must pass from the tenant to the owner of the land and take the form of differential rent II. The problem of transferring additional profits is related to the length of the lease terms. If the lease term is long (for example, more than 10 years), then the additional profit, which is the potential differential rent II, will go to the tenant for some time. Therefore, he is interested in a long term lease. The landowner, on the contrary, seeks shorter lease terms, after which he will increase the rent, which will include, in addition to the previous amount of rent, also a percentage, taking into account the improvement of the agricultural process. That is, all additional profit in the form of differential rent II will be at the disposal of the landowner. There is a constant competitive rivalry between land owners and land users-tenants regarding the determination of lease terms.

It follows from what has been said above that on lands that are inferior in terms of fertility and location and with additional investments of capital in the land area, additional profit, which then appears in the form of differential rent, is not formed.

The question arises of how the landowner of the worst plot realizes his ownership of this plot. The answer must be sought in the existence of absolute rent.

Differentiation in costs or returns arises from the fact that plots of land with relatively better quality are limited. Along with them, we have to exploit the worst areas. This phenomenon leads to the formation of differential rent I due to differences in natural and climatic conditions and the location of natural objects. But let's digress from the multiplicity of sites and focus on one. The intensification of its use leads to the fact that, although successive investments of resources are made in this area, nevertheless, the return on them decreases. At first, having spent our funds most efficiently, then we are forced to make the following, less efficient spending. The discrepancy between the return of successive costs on the same plot leads to the formation of differential rent II.
Let's explain this with an example. Let's take one plot of land and suppose that we make consecutive costs of 10 thousand rubles. each, and also analyze their returns. As a result of the first cost, we get 2 c. corn. At a price of 21 thousand rubles. for 1 c. revenue is 42 thousand rubles, per 1 ha. In this case, the site brings a rent equal to 32 thousand rubles.
On this, it would be possible to suspend the investment process and be content with a revenue of 32 thousand rubles. However, an increase in the intensity of operation of the site is possible, but an investment of another 10 thousand rubles is required. This cost will bring us an additional 1.7 centners of corn. The revenue will amount to 35.7 thousand rubles, and the rent - 25.7 thousand rubles. Consequently, the site, with an intensity of its operation of 20 thousand rubles. will generate income equal to 57.7 thousand rubles. If as a result of an additional 10 thousand rubles. costs will be produced only 1.5 c


corn, then the income will amount to 31.5 thousand rubles, and the rent - 21.5 thousand rubles. By this amount, the total rent brought by a piece of land will increase. It will amount to 79.2 thousand rubles. We will increase the intensity of cultivation by another 10 thousand rubles, i.e. up to 40 thousand rubles per 1 ha. This cost will increase the yield by 1 centner per hectare, the proceeds will be 21 thousand rubles, and the additional rent will be 11 thousand rubles, while the total rent will be 90.2 thousand rubles. This is where we will stop, since we assume that with a further increase in intensity, the additional yield will drop to 0.4 centners per 1 ha, and incomes will be equal to 8.4 thousand rubles. This means that the costs equal to 10 thousand rubles will not pay off.
Rice. 2.2 illustrates the return on additional capital investments in the same piece of land.
Briefly summarizing our calculations, we have obtained the following data, reflecting the drop in the return on additional investments of capital in the same plot of land:
Quantity 1 2 3 4 5
successive
investments
Total 10 20 30 40 50
attachments
(thousand roubles.)
32
1,7 1,5 1
0,4
recoil
additional costs in centners per ha
3,7 5,2 6,2 6,6
Total yield of plots in centners
42 35,7 31,5 21
Cash return of additional costs in thousand rubles.
42 77,7 109,8 130,2 138,6
The total return of the site in thousand rubles.
32 25,7 21,5 11
-1,6
Rent brought by additional costs in thousand rubles.
32 57,7 79,2 90,2
Total rental income from the site in thousand rubles.
As you can see, if we continue to increase the intensity of cultivation of the land, then the total income will fall. In chapter I, we noted that a natural object brings rental income at the best of possible ways its operation. Therefore, none of the figures of the total rental income (the last line), except for 90.2 thousand rubles, can be called the rental valuation of land.
This example can be rewritten in terms of costs. Then we need to calculate the cost per unit of output.
In order to grow the first 2 centners of corn, it is necessary to spend 10 thousand rubles, or 5 thousand rubles each. per 1 c. Next, we determine at what cost we can produce the next "portion" of corn. To do this, we divide 1.7 q by 10 thousand rubles. and get about 5.9 thousand rubles. The average cost for the next portion of corn will be about 6.7 thousand rubles. for 1 c. 10 thousand rubles will be spent on the fourth portion. per centner, and for the fifth - 25 thousand rubles. It makes no economic sense to produce the fifth portion, so the total production will be 6.2 centners. On fig. 2.3 shows the differential costs for this section. The shaded area - the difference between the price of corn and the cost of its production - corresponds to the rent brought by this plot.
33
3 1201
It is not difficult to see that rent can be easily calculated on
basis of both income and costs. In any case, the rent is determined by the difference between the proceeds from the sale of products and the costs of its production. The only rule to be followed is that the intensity of cultivation of the site should provide the maximum value of this difference. On fig. 2.2 shows that it is inappropriate to produce the fifth expense, since the return on its investment is negative. As shown in fig. 2.3, you should not seek to increase the yield of more than 6.2 centners per hectare, i.e., you should not produce the fifth portion of the product.
Let us calculate the average return of the site we are considering and the average cost of corn production. The average return will be equal to 3255 rubles. per hectare, and the average cost is 6451 rubles. for 1 c. To determine the amount of rent, we can use either one or the other indicator. If we think in terms of average return, then we need to subtract the price of invested resources from the average return, and then multiply the result by the amount of investment of these resources. Since we considered money as resources, their price is equal to 1 (1 ruble), and the volume is 40 thousand (but not rubles, but units of invested resources). Having carried out these mathematical operations, we will obtain the same estimate of the annuity as in
34
Costs I \\

PL 5.2 6.2 6.6 Production
corn, c

the last line of the calculation of the fall in the return of additional capital investments, namely - 90.2 thousand rubles.
Now let's calculate the rent using average costs. To do this, we need to subtract from the price of corn (21 thousand rubles) the value of the average cost of its production (6451 rubles) and multiply by the volume of corn production 6.2 centners. Adjusted for the accuracy of the calculations, we again obtain the value of the rent of 90.2 thousand rubles. per ha.
We need the indicator of average return or average costs in order to illustrate the process of formation of differential rent I. Suppose that in our example we were talking not about successive costs for the same plot, but about investments in different plots of land, starting from the land of the best quality. Then the drop in the return on additional capital investments with successive involvement in the operation of various plots of land will look like this:\r\nPlot number 1 2 3 4 5\r\nTotal investments 10 20 30 40 50\r\nin agricultural production \r\nin thousand rubles. rub. \r\nReturn of each plot 2 1.7 1.5 1 0.4\r\nin centners per hectare \r\nTotal yield of plots 2 3.7 5.2 6.2 6.6\r\nin centners \ r\nMoney return of each 42 35.7 31.5 21 8.4\r\nfrom plots in thousand rubles. \r\nRent brought by each 32 25.7 21.5 11 -1.6\r\nfrom plots in thousand rubles. \r\nDifferential rent I 21 14.7 10.5 0 -\r\nin thousand rubles.
The last line, titled "Differential Rent I," shows how much one lot is better than the other. To determine it, we choose the worst of the cultivated plots (plot 4), and subtract its estimate from the assessment of other plots. Note that plot 5 is not cultivated at all.
h*
35
Thus, the differential rent I, brought by the worst of the cultivated plots, is always equal to zero. In this case, the differential rent II can be positive, or it can also be equal to zero. It is equal to zero if the average cost of operating the site is equal to the marginal cost, and this is equivalent to the fact that its average return is equal to the marginal return.
It must be said that in real practice we simultaneously intensify the exploitation of individual plots and involve land of various qualities into exploitation. Accordingly, both factors of rent operate simultaneously, and it seems useless to try to determine what part of the rental income is formed due to the first, and what part - due to the second factor. Equally useless are attempts to divide the rental income into differential rents I and II. It is only necessary to keep in mind that the differences in natural and climatic conditions and the location of objects of nature management determine the formation of differential rent I, and the discrepancy between the returns of successive capital investments generates rent II. Both factors ultimately owe their origin to the natural properties of a natural resource.
Arguing in terms of the model of optimal nature management, it should be noted that the objective conditions of management (which include natural and climatic characteristics, site location, infrastructure development, availability of immobile resources) form the return function q (/), where / is the intensity of cultivation per unit area. Differential rent I is due to differences in the types of dependence q (/) for different sections, and differential rent II is due to the steepness of the return function or the marginal return function of each specific section (Fig. 2.4).
The differential rent of the second kind S) + S2 and S2 characterizes the absolute return of plots. The relative advantages of the first section over the second are Si, i.e. the difference between the rent brought by the first and second sections.
The non-linear nature of the return is not only a function of productivity. The effects of nonlinearity are typical for the material and raw materials complex, water management and other areas of nature management.
From fig. 2.4. it can be seen that differential rent I and differential rent II are not separate components of income. These are two indicators that characterize the method of its formation.

Differential rent II shows the absolute effect of the exploitation of a natural object, and differential rent I shows the comparative efficiency. They do not need to be added - after all, no one tried to add absolute efficiency to
36

/ - return of the first section; 2 - return of the second section; P is the price of products; Si + S2-differential rent II, brought by the first section; S2 - differential rent P, brought by the second site.
comparative (at least, such attempts are unknown to us).

More on Topic 2. DIFFERENTIAL RENT I AND DIFFERENTIAL RENT II:

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INTRODUCTION2

1. The concept of rent in various economic doctrines3

2. Types of rent 4

2.1. Land rent 4

2.2. Absolute rent 5

2.3. Differential rent 6

2.4. Monopoly rent 7

2.5. Economic rent 7

2.6. Building rent 9

2.7. Forest rent 10

3. Land tax 11

3.1. Subjects and objects land tax 11

3.2. Land tax rate 13

4. Problems of land tax and possible methods of their solution 15

4.1. Agricultural sector 15

4.2. Regulation of the agricultural sector 16

4.3. Agribusiness lending (land banks) 17

4.4. Land payment 19

CONCLUSION 21

References 23

INTRODUCTION

Wherever the forces of nature can be monopolized and provide an additional profit to the industrialist who uses them, whether it be a waterfall, or a rich mine, or water rich in fish, or a well-situated building site, a person is recognized by virtue of his title to a piece of land as the owner of these objects of nature captures this additional profit in the form of rent from the functioning capital. Economists define the essence of rent in different ways. Some consider rent as one of the types of income for property, the payment of owners for the use of a natural resource. Others view rent as a regular income from capital or land received by their owners without entrepreneurial activity. Rent is also defined as a special type of relatively stable income that is not directly related to entrepreneurial activity.

Analysis of the formation of rent and allows you to find out the sources of income of these two subjects of rental relations, to reveal the influence of the natural factor and the legal form of ownership on the mechanism of the emergence of rent.

The definition of rent is inextricably linked with the concept of land. Externally, rent is a payment for the use of land, which its owner receives from the tenant. Obviously, it is part of the value of the product received by the entrepreneur. But its nature, sources and circumstances of occurrence will be shown by theoretical analysis. First of all, it involves the clarification of two main circumstances that determine its occurrence: these are, firstly, the peculiarities of pricing for agricultural products, in which the natural resource has a decisive influence on labor productivity, and secondly, the specifics of obtaining excess profits in this industry and the reasons for sustainability their reproduction. These circumstances are generated by the following features inherent in the natural factor of production: 1) land and many other natural resources are not freely reproducible working conditions, like industrial tools and materials; 2) the limited availability of agricultural land in general, and land of better and average quality, all the more, causes a meager elasticity of land supply.

But it should also be borne in mind that the term "rent" has two meanings: legal and economic. In jurisprudence, rent is an independent legal relationship relating to the direct relationship between the subjects of the rent agreement, and has nothing to do with the lease of property. The economic relationship between the recipient of the rent and its payer is directly related to the use of credit funds or the lease of property.

1. The concept of rent in various economic doctrines

From a Marxist point of view economic theory rent is a converted form of surplus value along with profit, wages and interest. K. Marx wrote: “Whatever the specific form of rent, it is common to its types that the appropriation of rent is an economic form in which landed property is realized, and that land rent, in turn, presupposes landed property ...” . On the surface of the phenomenon, rent appears as a payment for land, which creates the impression that the land itself generates this rent. However, the labor theory of value denies this, since value can only be created by living labor. The source of rent is the unpaid surplus labor of hired workers in agriculture. This part of the surplus value, which is received by entrepreneurs - tenants of land plots, is paid by them to land owners.

In the interpretation of the theory of factors of production and the theory of marginal productivity, rent is the reward that the owner of natural resources, in particular land, receives in accordance with the marginal productivity of these factors.

The essence of one of the interpretations is that rent is not an independent form of income, but is a loan interest on the capital that is invested in land.

In accordance with the theory of the Physiocrats, rent is a pure product of nature, the only income that society actually receives.

2. Types of rent

2.1. ground rent

A special form of rent is land rent associated with agrarian relations. Land rent acts as part of the surplus product created by producers who manage the land. Land rent is a certain amount that a land owner receives from a tenant - an entrepreneur who has taken a land plot for temporary use for rent.

Land rent is formed not only in connection with the lease of land for agricultural production, rent also occurs in cases where land is leased by entrepreneurs for the construction of buildings and structures, the development of its subsoil. Land rent appears in two main forms - absolute and differential, which is due to the existence of two types of land monopolies: the monopoly of private ownership of land and the monopoly of land as an object of management.

2.2 Absolute rent

Absolute rent is the result of the monopoly of private ownership of land by a certain class of society. In fact, the owner of the land in this capacity, knowing that the land is necessary for everyone - for agricultural and industrial production - will force those who want to use the land to pay rent for it. Indeed, in English the word "rent" originally meant rent or rent, and this category appears with all clarity and certainty simultaneously with the emergence of capitalist society. There are two parts to this rent: one corresponds to the interest on capital already invested in the land and inseparable from it (reclamation, irrigation, buildings, etc.); the other always exists and corresponds to the transfer of the right to use the earth, or, as Ricardo said, the use of the original and indestructible properties of the earth.

The formation of absolute rent is connected with the fact that, due to the backwardness of agriculture in comparison with industry, the organic composition of capital invested in agriculture is lower than the organic composition of capital invested in industry, and, consequently, in agriculture, the share of variable capital (going to wages) is proportionally higher than in industry. It follows from this that the surplus value created in agriculture is higher than the average profit, and the value of products is higher than the capitalist price of production. The proportional distribution of the surplus value created in agriculture is hindered by landed property, which, representing a monopoly, itself constantly claims a part of this surplus value and appropriates the difference between the value and the price of production. Landed property thus raises the price of agricultural products by the amount it charges as absolute rent, and which is therefore a kind of tax imposed on society.

It should be emphasized that the historical backwardness of agriculture in comparison with industry, which is one of the main manifestations of the law of uneven capitalist development, stems not from the nature of the land, but from social relations. Private landed property, which hinders the investment of capital in land and appropriates an ever-increasing part of the surplus value, is one of the main causes of this backwardness. The explanation for the emergence of absolute rent follows from the fact that the organic composition of capital in agriculture is lower than in industry.

Analyzing such a concept as pure economic rent, we deliberately

considered the land and land, completely abstracting from the ways of their use in practical economic life. Naturally, different plots of land differ in fertility, climatic features, location, and not all of them are suitable for universal use. Land in the Krasnodar Territory has a lot of advantages for the cultivation of grain crops, and in the Kaliningrad Region - for the construction of ski resorts. For this reason (there has been an astonishing consensus of absolutely all economists since David Ricardo) not all land generates equal incomes in the form of ground rent in the markets of competing sellers.

The reasons, conditions for the formation, sources and forms of withdrawal of differential rent are shown in fig. 12.6. The reason for its formation monopoly on land as an object of management, carried out by the owner or tenant of the land. These entities have a monopoly right to manage land x and receiving income from them in the form of land rent. At the same time, this monopoly does not allow the economic use of these land plots by other economic entities.

Natural conditions The formation of differential rent are: limited land resources, differences in the natural fertility of land, as well as differences in their location relative to the markets for agricultural products.

The earth is limited in space, on the one hand, by the available land resources of the planet (it is impossible to create them additionally), and on the other hand, by the borders of the state. The areas of the best in terms of fertility lands are especially limited. At the same time, the needs of society for agricultural products are constantly increasing. The demand for agricultural raw materials from industry is increasing, the population of the planet is increasing, the income of the population is increasing, etc.

The limited land area and the growing demand for agricultural products make it impossible to concentrate its production only on the best lands. In order to meet its needs in agricultural products, humanity is forced to cultivate all the lands suitable for use: the best, the average, the worst.

But if mankind is compelled to cultivate all lands, regardless of their quality, then obviously economic conditions must be created under which it is possible to cover the costs of production and receive an average profit not only from the best and average plots, but also from the worst. Otherwise, it will be unprofitable to cultivate the worst lands, and they will fall out of agricultural circulation, and the demand for agricultural products will not be satisfied.

Therefore, the social (market) value of agricultural products is determined not by average production costs, as happens in industry, but by individual production costs on the worst plots of land. At the same time, not only those lands that have the worst natural qualities are considered the worst, but also those that are located at a great distance from the points of processing and sale of agricultural products, and therefore have high transport costs.

Under such conditions, the harvest, and hence the profit from its sale on the best and average plots of land (both in terms of fertility and location), will be more than average. This surplus over the average profit represents the differential ground rent from the best and average plots. And in the worst plots, only average profit is created, but there is no differential rent.

What has been said can be depicted with the help of graphs (Fig. 12.7).

The figure shows three land plots of different fertility: I - the best; II - medium; Sh is the worst.

The abscissa shows the yield of the plot in centners (Q), the ordinate shows the price of production (P). The MK curve is the average social cost of producing a unit of agricultural output; curves AK1, AK2, AK3 - the actual individual costs of production of a unit of output, respectively, in sections I, II, III.

As we can see, the best plot (I) has the highest yield (Q1) and the lowest production costs (AC1) compared to the average social production costs (MC). This means that the owner of the first plot, having sold the crop, will receive additional income in the form of differential rent, the size of which is equal to the area of ​​the shaded rectangle.

The owner of the middle plot (II) has an individual production cost of AK2 also lower than the social costs, and he will also receive additional income in the form of differential rent, but of a smaller size, since his yield Q2 is somewhat lower than on the best plot.

The owner of the worst plot (III) has the individual production costs of AK3 equal to the social costs of MC and the lowest yield is Q3. After the sale of products, he will reimburse his expenses and receive only an average profit. On the worst segment, additional income (above average profit) is not created, and, consequently, there is no differential rent.

Two forms of differential rent should be distinguished - the first (I) and the second (II).

Differential rent I- this is an additional net income created as a result of higher labor productivity on the best land plots in terms of natural fertility or location.

Differential rent II arises as a result of an artificial increase in the fertility of the land due to additional capital investments in the land.

The relationship between the first and second differential rents is that they are based on the use of land fertility. Only the first rent is connected with the natural, and the second - with the artificial fertility of the land (Fig. 12.8).

Rice. 12.8. Conditions for creating differential rent I and II