In economics, rent seeking occurs when an individual, organization, or firm seeks to make money by manipulating the economic environment rather than by making a profit through trade and production of wealth. The term comes from the notion of economic rent, but in modern use of the term, rent-seeking is more often associated with government regulation than with land rents. This article needs additional references or sources for verification. ... In economic theory, economic rent is an analytic term employed to distinguish the difference between the income earned by an input or factor of production, and the cost of the factor of production. ...

Description of concept

Rent seeking generally implies the extraction of uncompensated value from others without making any contribution to productivity, such as by gaining control of land and other pre-existing natural resources, or by imposing burdensome regulations or other government decisions that may affect consumers or businesses. While there may be few people in modern industrialized countries who do not gain something, directly or indirectly, through some form or another of rent seeking, rent seeking in the aggregate may impose substantial losses on society. Land in economics comprises all naturally occurring resources whose supply is inherently fixed (i. ...

Most studies of rent seeking focus on efforts to capture special monopoly privileges, such as government regulation of free enterprise competition, though the term itself is derived from the far older and more established practise of appropriating a portion of production by gaining ownership or control of land. The term "monopoly privilege rent seeking" is an often-used label for the former type of rent seeking. Often-cited examples include a farm lobby that seeks tariff protection or an entertainment lobby that seeks expansion of the scope of copyright. Other rent seeking is held to be associated with efforts to cause a redistribution of wealth by, for example, shifting the government tax burden or government spending allocation. An example is an organization that seeks different tax liabilities for married couples than for cohabiting siblings with the same incomes and spending and investment decisions. Regulatory capture is an economic phenomenon in which a government regulatory agency becomes dominated by the interests of the industry that it oversees. ... In economics and business ethics, a coercive monopoly is any monopoly maintained by coercion. ... Capitalism generally refers to an economic system in which the means of production are mostly privately[1] owned and operated for profit, and in which investments, distribution, income, production and pricing of goods and services are determined through the operation of a free market. ... Competition is the act of striving against others for the purpose of achieving gain, such as income, pride, amusement, or dominance. ... A tariff is a tax on foreign goods. ... Copyright symbol Copyright is a set of exclusive rights regulating the use of a particular expression of an idea or information. ... Income redistribution or redistribution of wealth is a political policy promoted by members of the political left, especially socialists, and opposed by members of the political right. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        A tax is a financial charge or other levy imposed on... Spending money is acquiring goods and services. ...

Development of theory

The phenomenon of rent seeking was first identified in connection with monopolies by Gordon Tullock, in a 1967 paper.^[1] The phrase rent seeking itself, however, was coined in 1974 by Anne Krueger in another influential paper.^[2] The word "rent" in this sense is not directly equivalent to its usual use meaning a payment on a lease, but rather stems from Adam Smith's division of incomes into profit, wage, and rent.^[3] Rent-seeking behavior is distinguished in theory from profit-seeking behavior, in which entities seek to extract value by engaging in mutually beneficial transactions.^[4] Critics of the concept point out that in practice, there may be difficulties distinguishing between beneficial profit seeking and detrimental rent seeking^[5]. Often a further distinction is drawn between rents obtained legally through political power and the proceeds of private common-law crimes such as fraud, embezzlement and theft. This viewpoint sees "profit" as obtained consensually, through a mutually agreeable transaction between two entities (buyer and seller), and the proceeds of common-law crime non-consensually, by force or fraud inflicted on one party by another. Gordon Tullock (born February 13, 1922 in Rockford, Illinois) is currently professor of law and economics at the George Mason University School of Law in Arlington, Virginia. ... Anne O. Krueger has been the First Deputy Managing Director of the International Monetary Fund since September 1, 2001. ... Adam Smith FRSE (baptised June 5, 1723 O.S. / June 16 N.S. – July 17, 1790) was a Scottish moral philosopher and a pioneering political economist. ... This article or section does not cite any references or sources. ... A wage is a compensation which workers receive in exchange for their labor. ... In economic theory, economic rent is an analytic term employed to distinguish the difference between the income earned by an input or factor of production, and the cost of the factor of production. ... In common law legal systems, judges have the authority and duty to decide what the law is when there is no other authoritative statement of the law. ... Everyday instance of theft: the bike which fits on this wheel has disappeared. ...

Rent, by contrast with these two, is obtained when a third party deprives one party to a transaction of access to otherwise accessible transaction opportunities, making the nominally "consensual" transaction between the other two parties a rent-collection opportunity for the second. The abnormal profits of the illegal drug trade are considered rents by this definition, as they are neither legal profits nor the proceeds of common-law crimes. Taxi medallions are another commonly referenced example of rent seeking. To the extent that the issuing of medallions constrains overall supply of taxi services (rather than ensuring competence or quality), forbidding competition by non-medallion taxis makes the otherwise consensual transaction of taxi service a forced transfer of wealth from the passenger to the medallion holder. Some economists hold that governments should reform their tax systems, so as to look first to recovering the rents that they empower some private interests to extract from others (including those accruing to land and pollution permits) rather than levying financial penalties on those who engage in productive economic activities and consensual transactions. This article does not cite any references or sources. ... Taxicab, short forms taxi or cab, is a type of public transport for a single passenger, or small group of passengers, typically for a non-shared ride. ... Tax rates around the world Tax revenue as % of GDP Economic policy Monetary policy Central bank   Money supply Fiscal policy Spending   Deficit   Debt Trade policy Tariff   Trade agreement Finance Financial market Financial market participants Corporate   Personal Public   Banking   Regulation        A tax is a financial charge or other levy imposed on...

Rent seeking is held to occur often in the form of lobbying for economic regulations such as tariffs. Regulatory capture is a related concept which refers to collusion between firms and the government agencies assigned to regulate them, which is seen as enabling extensive rent-seeking behavior, especially when the government agency must rely on the firms for knowledge about the market. Lobbying is a concerted effort designed to achieve some result, typically from government authorities and elected officials. ... Regulatory capture is an economic phenomenon in which a government regulatory agency becomes dominated by the interests of the industry that it oversees. ...

Possible consequences

From a theoretical standpoint, the moral hazard of rent seeking can be considerable. If "buying" a favorable regulatory environment is cheaper than building more efficient production, a firm will choose the former option, reaping incomes entirely unrelated to any contribution to total wealth or well-being. This results in a sub-optimal allocation of resources — money spent on lobbyists and counter-lobbyists rather than on research and development, improved business practices, employee training, or additional capital goods — which retards economic growth. Claims that a firm is rent-seeking therefore often accompany allegations of government corruption, or the undue influence of special interests.^[6] This section is studied by Argagui monopoli In law and economics, moral hazard is the name given to the risk that one party to a contract can change their behaviour to the detriment of the other party once the contract has been concluded. ... The phrase research and development (also R and D or R&D) has a special commercial significance apart from its conventional coupling of scientific research and technological development. ... Professional development refers to vocational education with specific reference to continuing education of the person undertaking it in the area of employment, it may also provide opportunities for other career paths. ... In economics, capital goods refer to real products that are used in the production of other products but are not incorporated into the new product that is derived from the production of the older product. ... This article needs additional references or sources for verification. ... A special interest is a person or political organization established to influence governmental policy or legislators in a specific area of policy. ...

Rent seeking may be initiated by government agents, such agents soliciting bribes or other favors from the individuals or firms that stand to gain from having special economic privileges, which opens up the possibility of exploitation of the consumer.^[7] The term exploitation may carry two distinct meanings: The act of utilizing something for any purpose. ... Consumers refers to individuals or households that purchase and use goods and services generated within the economy. ...

Rent-seeking behavior, in terms of land rent, figures in Georgist economic theory, where the value of land is largely attributed to provision of government services and infrastructure (e.g., road building, provision of public schools, maintenance of peace and order, etc.) and the community in general, rather than resulting from any action or contribution by the landowner. Georgism, named for Henry George (1839-1897), is a philosophy and economic theory that follows from the belief that although everyone owns what they create; land, and everything else supplied by nature, belongs equally to all humanity. ...

See also

• The Logic of Collective Action
• Public choice theory
• Iron triangle
• Principal-agent problem

The Logic of Collective Action: Public Goods and the Theory of Groups is a book by Mancur Olson, Jr. ... Public choice theory is a branch of economics that studies the decision-making behavior of voters, politicians and government officials from the perspective of economic theory, namely game theory and decision theory. ... This article or section cites very few or no references or sources. ... In economics, the principal-agent problem treats the difficulties that arise under conditions of incomplete and asymmetric information when a principal hires an agent. ...

Notes

Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era. ... February 11 is the 42nd day of the year in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era. ... February 11 is the 42nd day of the year in the Gregorian calendar. ...

References

• Tullock, Gordon (1987). "Rent seeking", The New Palgrave: A Dictionary of Economics. Palgrave Macmillan, vol. 4, pp.147-149. ISBN 0333372352. 

External links

• EDC News page on rent seeking
• Rent-Seeking Behavior by Leon Felkins
• Rent-Seeking, Public Choice and the Prisoner's Dilemma by Kelly L. Ross