This article estimated the impacts of land fragmentation on production costs and input demands using panel data of Japanese rice farms. Empirical results reveal that fragmentation increases production costs and offsets economies of size, and that these impacts are strong especially for large size farms. This result implies that as the farm gets larger, emphasis should be switched from increasing size to the settlement of fragmentation, in order to enhance efficiency. Moreover, it was demonstrated that fragmentation increases not only fuel inputs and labor hours for weeding and harvesting as generally accepted, but also managerial labor such as bookkeeping and meeting, and materials such as fertilizers and pesticides probably due to the substitution effects from labor. The range of fragmentation's impacts is spread beyond our scope. This result implies that the settlement of fragmentation will bring not only the reduction of production cost but also an environmental benefit by reducing fertilizers and pesticides.

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The economic transactions in rural China are self-enforceable without any legal enforcement because they are embedded in the informal social institutions based on gift giving guanxi ties. These ties are of two types—expressive guanxi ties based on reciprocal gift exchange and instrumental guanxi ties based on unidirectional gift giving. In this paper, we first prove theoretically that gift giving is a result of rational conduct that minimizes expenditure. Thereafter, a few hypotheses are proposed and empirically tested through categorical regression and analysis of micro level data. We find that expressive guanxi ties are not related to income level but instrumental guanxi ties are related to income level. In other word, we verify the rationality of informal institutions in rural China. It is implied that under a situation whrein the cost of transition from informal to formal social institutions for economic transaction is prohibitive, the present informal human governance based on gift giving will continue to be employed by Chinese villagers, because it is an intrinsically rational system.

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