What is rent seeking?
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Rent seeking refers to activities where individuals or entities invest resources in capturing economic gain from others without contributing to productivity or value creation. Here's a summary from various experts:
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Suresh Naidu explains that rent in economics is payment above what would be received under the next best alternative. Traditional examples include landlords who collect rent without improving the land's value, leading to the term "social parasites" for unproductive landlords 1.
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Michael Munger elaborates that in a competitive market, resources are used in pursuit of profits, which generally benefits consumers. However, when competition revolves around obtaining government-provided rents—like grants or subsidies—it often leads to wasted resources. As an example, he mentions city employees who spend a large portion of a grant just to secure more grants, rather than benefiting citizens 2.
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Tyler Cowen describes rent seeking as investing efforts in taking wealth from others rather than generating it. This often involves political maneuvering or fraud. For example, lobbying and financial sector practices like "heads I win, tails you lose" can be seen as innovative, yet unproductive forms of rent seeking 2.
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Eric Weinstein adds that rent seeking degrades market morality. He contrasts it with productive activities like innovation, where effort results in better products or services for society. He provides examples of exploiting legal loopholes or rights for financial gain without creating value 3.
Thus, while rent seeking involves capturing economic benefits, it does so through non-productive means, often leading to inefficiencies and inequality in the economic system.
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