On Minimum Rents: Part 2, A Modern Interpretation

The idea that there might be some minimum rent below which a land-owner would not let to any tenant was put forward by Marx, but with little supporting argument. In this paper, it is shown that the modern concepts and analysis of transaction costs and monitoring costs can explain why such a minimum rent might exist. Further, that risk and uncertainty, coupled with the fact that tenancies are usually for some years, also provide an explanation for the reluctance of land- and property-owners to let at minimal rents. Some empirical evidence is cited, particularly the substantial rents which have to be paid to lay telecommunication cables across private land.