In this paper we study the effects of the tenure system introduced with the land reform carried out in Taiwan in 1949–1953 on the rice sector. According to the new tenure system rent is limited to no more than 37.5% of the output of the main crops. In addition, all land-leasing agreements were changed into long-term contracts. A land lessor can now terminate a land-leasing agreement only if he fulfills very restrictive conditions. The new tenure system has induced a suboptimal input of fertilizer and labor in rice production. The fertilizer and labor inputs of tenant farmers are 37.5% under the optimal input levels. Applying our earlier econometric studies to the rice sector in Taiwan we have simulated the effect of the new tenure system introduced with the land reform on rice production and the rice market. The annual output of rice and the per capita income on average would have been about 34,200 mt (1.7%) and NT$ 212 (0.9%) higher, respectively, if the new tenure system had not been introduced with the land reform in Taiwan. The results of our simulation appear too low since the effect of the new tenure system on labor input could not be considered due to the lack of data. As we assumed above, the effects of the new tenure system would have been much higher if the impact on labor had been considered. These results are even more impressive because of tenant farmers' small share of the sector in the period under consideration.