Rent-seeking

Rent-seeking

The simplest definition of rent-seeking is the expenditure of resources attempting to enrich oneself by increasing one's share of a fixed amount of wealth rather than trying to create wealth. Since resources are expended but no new wealth is created, the net effect of rent-seeking is to reduce the sum of social wealth.

Rent-seeking generally implies the extraction of uncompensated value from others without making any contribution to productivity. The origin of the term refers to the gaining control of land or other pre-existing natural resources. In the modern economy, a more common example of rent-seeking is political lobbying to receive a government transfer payment, or to impose burdensome regulations on one's competitors in order to increase one's market share.

In modern industrialized countries, economic benefits derived by most people involve some form of rent-seeking, but in the aggregate such behaviors may result in substantial social losses.

Studies of rent-seeking focus on efforts to capture special monopoly privileges such as government regulation of free enterprise competition.

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.

It is important to distinguish between profit-seeking and rent-seeking. Some will try to say that rent-seeking is a creation of wealth. However, profit-seeking should be understood as the creation of wealth, while rent-seeking includes the use of the power of the state or government to distribute wealth between different groups of individuals.

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