Economic Rent
- Economic rent is the income earned by a factor of production in excess of its opportunity cost, or the minimum amount required to keep it in its current use.
In neoclassical economics, economic rent is any payment (in the context of a market transaction) to the owner of a factor of production or resource, supply of which is fixed. In classical economics, economic rent is any payment made (including imputed value) or benefit received for non-produced inputs such as location (land) and for assets formed by creating official privilege over natural opportunities (e.g., patents). In the moral economy of neoclassical economics, economic rent includes income gained by labor or state beneficiaries of other “contrived” (assuming the market is natural, and does not come about by state and social contrivance) exclusivity, such as labor guilds and unofficial corruption.
Example
A landlord may earn economic rent on a property if the market rent is higher than the cost of maintaining the property.
Synonyms
- Similar: Unearned income, Surplus value, Monopoly rent
Etymology
- The concept of economic rent was first developed by the classical economist David Ricardo in the early 19th century, and it is based on the idea that the value of a factor of production is determined by its scarcity and demand.
Denotations
- Economic rent can have negative connotations, implying that individuals or companies are earning income without contributing to the overall productivity of the economy.