Tuesday, May 10, 2016

What is "rent-seeking" for economists?

Didier Jacobs gives is a handy definition in They Don’t Just Hide Their Money. Economist Says Most of Billionaire Wealth is Unearned. Evonomics :

Economists define “rent” as the difference between what people are paid and what they would have to be paid to do the work anyway. The classical example is the farmer who owns particularly fertile land. With the same effort, she can produce more than other farmers working on land of average productivity. The extra income she gets is a rent. Monopolists also get rent by overcharging customers as compared to what they could charge in competitive markets. More generally, economists have identified a series of “market failures”, which are situations where full competition does not prevail and where someone can therefore overcharge – they would be ready to do the work for less, but lack of competition allows them to make a quick extra buck. Government can alleviate market failures through proper economic regulation; or it can make them worse. Political scientists define “rent-seeking” as influencing government to get special privileges, such as subsidies or exclusive production licenses, to capture income and wealth produced by others.
Vulture funds like the ones that just successfully ripped off the nation of Argentina are also engaging in "rent-seeking" behavior.