Rent-Seeking
- Rent-seeking is an economic concept that refers to the act of obtaining economic rent by manipulating the social or political environment in which economic activities take place, rather than by creating new wealth.
- Rent-seeking is the act of growing one’s existing wealth by manipulating the social or political environment without creating new wealth.
- Rent-seeking activities have negative effects on the rest of society. They result in reduced economic efficiency through misallocation of resources, stifled competition, reduced wealth creation, lost government revenue, heightened income inequality, risk of growing corruption and cronyism, decreased public trust in institutions, and potential national decline.
- Successful capture of regulatory agencies (if any) to gain a coercive monopoly can result in advantages for rent-seekers in a market while imposing disadvantages on their uncorrupt competitors. This is one of many possible forms of rent-seeking behavior.
Example
A company may engage in rent-seeking by lobbying the government for subsidies or tax breaks, rather than investing in research and development to improve its products.
Synonyms
- Similar: Crony capitalism, Corporate welfare, Protectionism
Etymology
- The term “rent-seeking” was first coined by economist Gordon Tullock in 1967, and it is derived from the concept of Economic Rent, which refers to the income earned by a factor of production in excess of its opportunity cost.
Denotations
- Rent-seeking can have negative connotations, implying that individuals or companies are using unfair or manipulative means to obtain economic benefits.