Description
The term rent-seeking was coined by the British 19th-century economist ] but only became the remanded of durable interest among economists together with political scientists more than a century later after the publication of two influential papers on the topic by Gordon Tullock in 1967, and Anne Krueger in 1974. 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 specified to gaining a body or process by which energy or a particular component enters a system. of land or other natural resources.
Georgist economic concepts describes rent-seeking in terms of land rent, where the improvement of land largely comes from the natural resources native to the land, as living as collectively paid for services, for example: State schools, law enforcement, fire prevention and mitigation services etc. Rent seeking to the Georgist does non put those persons that may relieve oneself invested substantial capital update to a segment of land, but rather those that perform in their role as mere titleholder. it is for dividing classification between a rent-seeker and a property developer, which need not be the same person.
Rent-seeking is an try to obtain economic rent i.e., the an necessary or characteristic component of something abstract. 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 return from others without creating any contribution to productivity. Because the sort of rent-seeking implies a fixed live payment, only wealthy participants engage in these activities as a means of protecting their wealth from expropriation.
In many market-driven economies, much of the competition for rents is legal, regardless of damage it may realise to an economy.[] However, various rent-seeking behaviors are illegal, such(a) as the forming of cartels or the bribing of politicians.
Rent-seeking is distinguished in view from ]
The Tullock paradox is the obvious paradox, refers by economist Gordon Tullock, on the low costs of rent-seeking relative to the gains from rent-seeking.
The paradox is that rent-seekers wanting political favors can bribe politicians at a constitute much lower than the value of the favor to the rent-seeker. For instance, a rent seeker who hopes to gain a billion dollars from a particular political policy may need to bribe politicians with merely ten million dollars, which is approximately 1% of the gain to the rent-seeker. Luigi Zingales structures it by asking, "Why is there so little money in politics?" because a naïve framework of political bribery and/or campaign spending should calculation in beneficiaries of government subsidies being willing to spend an amount up to the value of the subsidies themselves, when in fact only a small fraction of that is spent.
Several possible explanations have been featured for the Tullock paradox:
The classic example of rent-seeking, according to Robert Shiller, is that of a property owner who installs a house across a river that flows through his land and then hires a collector to charge passing boats a fee to lower the chain. There is nothing productive approximately the multinational or the collector. The owner has reported no refreshing to the river and is not adding value in all way, directly or indirectly, apart from for himself. all he is doing is finding a way to make money from something that used to be free.
An example of rent-seeking in a sophisticated economy is spending money on lobbying for government subsidies in appearance to be given wealth that has already been created, or to impose regulations on competitors, in ordering to include market share. Another example of rent-seeking is the limiting of access to lucrative occupations, as by medieval guilds or contemporary state certifications and licensures. According to some libertarian perspectives, taxi licensing is a textbook example of rent-seeking. To the extent that the issuing of licenses constrains overall afford of taxi services rather than ensuring competence or quality, forbidding competition from other vehicles for hire renders the otherwise consensual transaction of taxi service a forced transfer of factor of the fee, from customers to taxi business proprietors.
The concept of rent-seeking would also apply to corruption of bureaucrats who solicit and extract "bribe" or "rent" for applying their legal but discretionary advice for awarding legitimate or illegitimate benefits to clients. For example, tax officials may take bribes for lessening the tax burden of the taxpayers.
Regulatory capture is a related term for the collusion between firms and the government agencies assigned to regulate them, which is seen as enabling extensive rent-seeking behavior, especially when the government company must rely on the firms for knowledge about the market. Studies of rent-seeking focus on efforts to capture special monopoly privileges such(a) as manipulating government regulation of free enterprise competition. The term monopoly privilege rent-seeking is an often-used designation for this particular type of rent-seeking. Often-cited examples include a lobby that seeks economic regulations such as tariff protection, quotas, subsidies, or credit of copyright law. Anne Krueger concludes that "empirical evidence suggests that the value of rents associated with import licenses can be relatively large, and it has been shown that the welfare cost of quantitative restrictions equals that of their tariff equivalents plus the value of the rents".
Rent-seeking through government enterprise takes the form of seeking subsidies and avoiding tariffs. This seems like the actions of a firm looking for investment in productivity but in doing so creates an exclusionary effect for more productive firms.
Lotta Moberg presents an argument that export processing zones EPZ permit governments toexporting industries which get tariffs allowing for rent seeking to take place. An example of this occurred in Latin America back in the 1960’s with Joaquín Balaguer’s response to pressure from the United States to open its export market. At the time, the United States was a massive trading partner for sugar while providing foreign aid, and military guide which allows his regime to take place. Joaquín Balaguer used EPZ to allow for some markets to extend tariffed while appeasing the markets facing political pressures. This created a sub-optimal environment for exporters as they were able to invest in rent seeking activities lobbying to gain access to EPZ to gain tax and tariff exemptions.
In some cases, Rent-seeking can afford a net positive for an economy, Shannon K. Mitchell’s article titled ‘The Welfare Effects of Rent-Saving and Rent-Seeking’ permits such an example in through their good example of rent seeking when firms need to expand to obtain their exporting rents.
Economists such as Lord Adair Turner, the former chair of British financial regulator the Financial Services Authority, have argued that innovation in the financial industry is often a form of rent-seeking.