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Rent Seeking

Generali
Posts: 36,411 Forumite

I have occasionally sought to explain economic terms as I see them and thought I would look at rent seeking.
To start with what it isn't, it's not renting stuff out: it's not Air BnB or Uber!
Rent seeking occurs as a result of Government actions in the economy. An example of rent seeking is the use of subsidies in agriculture to push up agricultural production. The European Union pays huge amounts of money to farmers to encourage them to produce more food. The impact of this is:
1. More expensive food
2. Higher taxes
3. A load of agricultural production which either gets wasted or sold overseas at below the cost of production
Farmers who overproduce food in the expectation of receiving a subsidy rather than because there is a market for the food are rent seekers. (This is not an anti-farmer rant or even an anti-CAP moan, it is just an example)
There are many more examples of rent seeking in the economy. Markets from pubs to taxis to house building to banking have some aspect of rent seeking baked in to the current model.
To start with what it isn't, it's not renting stuff out: it's not Air BnB or Uber!
Rent seeking occurs as a result of Government actions in the economy. An example of rent seeking is the use of subsidies in agriculture to push up agricultural production. The European Union pays huge amounts of money to farmers to encourage them to produce more food. The impact of this is:
1. More expensive food
2. Higher taxes
3. A load of agricultural production which either gets wasted or sold overseas at below the cost of production
Farmers who overproduce food in the expectation of receiving a subsidy rather than because there is a market for the food are rent seekers. (This is not an anti-farmer rant or even an anti-CAP moan, it is just an example)
There are many more examples of rent seeking in the economy. Markets from pubs to taxis to house building to banking have some aspect of rent seeking baked in to the current model.
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Comments
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Would you say that council/social housing, free education and the NHS are examples of rent seeking?0
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Would you say that council/social housing, free education and the NHS are examples of rent seeking?
Social housing absolutely is: a favoured client group is defined and then provided with heavily subsidised housing.
The NHS to a large extent too. If we were spending our own money, we would make many fewer visits to see a GP with a minor head cold. There is a definite misallocation of resources as a result of the NHS being 'free'. Whether non-Government maintained healthcare systems are better remains moot however and life isn't just about economics and the economy: it is perfectly reasonable to make bad economic decisions for non-economic reasons (let's not play the game that the choice is between the 'American System' and the NHS as that is a false dichotomy).
'Free' education might well see examples of rent seeking too. There are huge numbers of young adults leaving university with a degree that they simply will never need and never pay for. IMHO there is a huge oversupply of education as it is massively subsidised.0 -
The premise of those who coined the term 'rent seeking' is that it's a negative thing, costing more than it's worth from a strictly economic viewpoint.
The real acid test to see if that's true, would be to compare states/economies the do 'rent seeking' in a Victorian-philanthropic way (e.g. where value is put on health/education/housing standards) with states/economies where no such thing happens.
Or in other words, how do you differentiate between rent seeking that is actually an investment, albeit with hard-to-measure returns, and rent seeking that has 'negative ' value?0 -
The premise of those who coined the term 'rent seeking' is that it's a negative thing, costing more than it's worth from a strictly economic viewpoint.
The real acid test to see if that's true, would be to compare states/economies the do 'rent seeking' in a Victorian-philanthropic way (e.g. where value is put on health/education/housing standards) with states/economies where no such thing happens.
Or in other words, how do you differentiate between rent seeking that is actually an investment, albeit with hard-to-measure returns, and rent seeking that has 'negative ' value?
The term is neither positive or negative: it refers to a concept called economic rent which is the extra amount of profit you can earn over a 'normal' amount (the 'normal' amount is generally unspecified).
Where do you get the idea that the term 'rent seeking' was termed as a negative phrase? It's perfectly normal behaviour. If someone (e.g the Government) is going to pay me to drink wine rather than beer or tea rather than coffee that is bound to have an impact on my behaviour.0 -
Are things like gaming the tax system rent seeking too i.e. higher earners using pension contributions to reduce higher rate tax and gain access to child benefit? I spend time and effort trying to do things like this; I sometimes wonder if a simpler tax and benefit system would divert my attention to doing something more productive instead.
Working tax credits are a good example too which encourage people to work less by introducing a steep marginal tax rate at relatively low incomes.0 -
Are things like gaming the tax system rent seeking too i.e. higher earners using pension contributions to reduce higher rate tax and gain access to child benefit? I spend time and effort trying to do things like this; I sometimes wonder if a simpler tax and benefit system would divert my attention to doing something more productive instead.
Working tax credits are a good example too which encourage people to work less by introducing a steep marginal tax rate at relatively low incomes.
Yup, both good examples. You identify one of the problems of rent seeking: people spend their time seeking to game the system rather than doing something productive.0 -
Seems a bit unfair to only look at rent seeking in terms of govt distortions to the market. Look at the recent spate of mobile telecoms mergers clearly aimed to earn excess returns bu reducing competitors. Was it Adam Smith who had something to say about what happens when business people get together...I think....0
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I think you've defined subsidy seeking
But subsidy seeking is actually profit seekig
rent seeking is profit seeking which is no bad thing
Everything is actually rented if you think of it logically.
You may 'buy' your car but you are actually renting it at a cost ler miles. So if your £10k new car lasts 100,000 miles you actually rented it for 10p a mile. Likewise your fridge your TV even your shoes are 'rented'
I think the 'negative' comes into it as people see renting homes as nil value added (theycant see that someone gave up spending money on !!!! they want and unstead built a house to rent out. Forgoing consumption today for an income in the future. Of course renters think the tooth fairy built homes0 -
I think you've defined subsidy seeking
But subsidy seeking is actually profit seekig
rent seeking is profit seeking which is no bad thing
Everything is actually rented if you think of it logically.
You may 'buy' your car but you are actually renting it at a cost ler miles. So if your £10k new car lasts 100,000 miles you actually rented it for 10p a mile. Likewise your fridge your TV even your shoes are 'rented'
I think the 'negative' comes into it as people see renting homes as nil value added (theycant see that someone gave up spending money on !!!! they want and unstead built a house to rent out. Forgoing consumption today for an income in the future. Of course renters think the tooth fairy built homes
I'm talking about economic rent not rent.
Economic rent kinda boils down to being the amount of money you can earn from an asset greater than the next most profitable alternative use.
Rent seeking is looking to gain a greater return from an asset due to Government policies.0 -
I'm talking about economic rent not rent.
Economic rent kinda boils down to being the amount of money you can earn from an asset greater than the next most profitable alternative use.
Rent seeking is looking to gain a greater return from an asset due to Government policies.
So by your definition
profit seeking is profit seeking from non government policies
and rent seeking is profit seeking from government policies
seems lile splitting hairs0
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