In economics and in public-choice theory, rent-seeking involves seeking to increase one's share of existing wealth without creating new wealth. Rent-seeking results in reduced economic efficiency through poor allocation of resources, reduced actual wealth-creation, lost government revenue, increased income inequality, and (potentially) national decline.

Attempts at capture of regulatory agencies to gain a coercive monopoly can result in advantages for the rent seeker in a market while imposing disadvantages on (incorrupt) competitors. This constitutes one of many possible forms of rent-seeking behavior.

The idea of rent-seeking was developed by Gordon Tullock in 1967, while the expression rent-seeking itself was coined in 1974 by Anne Krueger. The word "rent" does not refer specifically to payment on a lease but rather to Adam Smith's division of incomes into profit, wage, and rent. The origin of the term refers to gaining control of land or other natural resources.

Georgist economic theory describes rent-seeking in terms of land rent, where the value of land largely comes from government infrastructure and services (e.g. roads, public schools, maintenance of peace and order, etc.) and the community in general, rather than from the actions of any given landowner, in their role as mere titleholder. This role must be separated from the role of a property developer, which need not be the same person.

Rent-seeking is an attempt to obtain economic rent (i.e., the portion of income paid to a factor of production in excess of what is needed to keep it employed in its current use) by manipulating the social or political environment in which economic activities occur, rather than by creating new wealth. Rent-seeking implies extraction of uncompensated value from others without making any contribution to productivity. The classic example of rent-seeking, according to Robert Shiller, is that of a feudal lord who installs a chain across a river that flows through his land and then hires a collector to charge passing boats a fee (or rent of the section of the river for a few minutes) to lower the chain. There is nothing productive about the chain or the collector. The lord has made no improvements to the river and is not adding value in any way, directly or indirectly, except for himself. All he is doing is finding a way to make money from something that used to be free.

In many market-driven economies, much of the competition for rents is legal, regardless of harm it may do to an economy. However, some rent-seeking competition is illegal – such as bribery or corruption.

This page was last edited on 29 January 2018, at 23:58.
Reference: under CC BY-SA license.

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