0
$\begingroup$

Rent seeking is often associated with lobbying.

Investopedia's article on rent seeking states that rent seeking is gaining wealth without "creating" wealth. Is this the only commonly used definition?

Is all lobbying rent seeking?

Is voting a form of rent seeking?

What if I have a house and I rent the house to tenants? Am I rent seeking?

Obviously I am seeking tenants that, well, pay rent. Also if the house is empty then the house is not producing "comfort" and hence by getting the house rented I am increasing wealth.

Am I rent seeking?

Is all lobbying rent seeking?

A good answer should provide samples of acts that are lobbying but not rent seeking or via versa. If there is no such thing, then an answer can say that all rent seeking is lobbying, for example.

| improve this question | |
$\endgroup$
  • $\begingroup$ The page is unclear. For example, is collecting rent from apartment you own is rent seeking? Based on that definition not. However, it seems to be part of rent on Adam Smith's distribution. $\endgroup$ – user4951 Apr 4 '18 at 11:13
  • $\begingroup$ Is collecting rent from your apartment rent seeking? $\endgroup$ – user4951 Apr 4 '18 at 11:22
  • $\begingroup$ Has the answer cleared your uncertainty? If you find it ambiguous, please do let me know which bit is still unclear to you. $\endgroup$ – 410 gone Apr 4 '18 at 18:31
5
$\begingroup$

The word rent has a general meaning, and a specific technical meaning within economics.

As the article you've linked to states explicitly:

Rent-seeking occurs when an individual or business attempts to make money from its resources without using those resources to benefit to society or generate wealth

It should be obvious that when an apartment is rented out, money is being made by using the resource of the apartment to benefit society.

The rent (in the lay sense) on the apartment is not the same as an economic rent, and at that link, we read:

Economic rent is an excess payment made to or for a factor of production over the amount required by the property owner to proceed with the deal.

The word rent has two different meanings.

One is the lay meaning: the price paid for the use of property for a fixed period of time.

The specific technical meaning within the context of rent-seeking is as set out in the link in your question. This is a different meaning to the lay meaning. It is not the same meaning. It is different. The same word can be used to mean two different things. Even though it's the same word. One word, two different meanings. We use the context to determine which is the appropriate meaning. As the context in your question is economics (something of which you are well aware, as you have posted this question on the Economics SE), then the technical meaning, as defined in the link you provided, is the relevant one. Not the lay meaning.

So rent-seeking, is about seeking economic rent (technical sense); it is not about charging the rent (lay sense) for the use of the property.

Lobbying and rent-seeking are different things. Lobbying may or may not involve rent-seeking. Rent-seeking may or may not involve lobbying. It's like asking whether fish is the same thing as chips. You can have fish with or without chips. You can have chips with or without fish. Just because they often go together, does not mean they are the same thing.

| improve this answer | |
$\endgroup$
  • $\begingroup$ Payment for use of capital is different from bribing officials (or similar). More specifically paying a monthly amount to obtain use of a capital asset (paying rent for a property where you run a bar) is different from bribing people to obtain special benefits (e.g., paying the mayor a bribe to prevent a second bar from opening, which could lead to competitive prices for consumers and better options for workers). $\endgroup$ – nathanwww Apr 4 '18 at 20:04
  • $\begingroup$ Say Bill Gates bribe every citizen of Indonesia to use Microsoft Products. Is Bill Gates rent seeking? $\endgroup$ – user4951 May 21 '19 at 17:09
  • 1
    $\begingroup$ When I rent my apartment out, is it not the case that - aside from rent used to maintain the apartment/pay interest/expenses - the surplus is not used to benefit society, as it was merely what I demanded to allow somebody to access what was already there? $\endgroup$ – Sideshow Bob May 29 '19 at 11:59
2
$\begingroup$

I think most confusion surrounding the terms "economic rent" and "rent-seeking" stem from an incorrect understanding of what rent really is. Contrary to more modern (re-)definitions, rent is merely the portion of economic surplus claimed by the owner of land (or natural resources associated with land.) It really has very little to do with "productive activity" or the "amount over and above that required to keep a factor of production" or anything of the sort. Historically, these alternate definitions were developed specifically to reduce the influence of economist and politician Henry George, around the turn of the last century. Since that time, economic theory has continued to develop along the same lines, without a clear understanding as to why Land suddenly disappeared as a factor of production.

So yes, renting out your land to somebody else is often — but not always — rent-seeking. If you purchased the land at a lower price and it has since appreciated in virtue of increased demand, capital improvements made by your neighbors, public infrastructure, etc. and you are able to rent out that land to somebody else at a price higher than the normal interest rate (on the amount of your original investment, plus the costs of any capital improvements you have made) then the difference is indeed economic rent. However, if you purchase a rental property at (near) equilibrium pricing and charge market rent, you are most likely not collecting any economic rent, but rather "contract rent" instead. If the area becomes more desirable over time, and market rents increase, then that difference then becomes economic rent.

All economic rent is unearned income, but the mistake most modern economists make is in thinking the opposite is true as well.

| improve this answer | |
$\endgroup$
  • $\begingroup$ "if you purchase a rental property at (near) equilibrium pricing and charge market rent, you are most likely not collecting any economic rent": how might you square this with the fact that buy-to-let has been considered so profitable in the UK? and why is owning ones home generally cheaper than renting? $\endgroup$ – Sideshow Bob May 28 '19 at 22:22
  • $\begingroup$ I can’t speak to any specific UK markets, but in general the situation you describe applies to most markets where rents are rising quickly and/or consistently. In such markets, people will purchase a property at (near) an equilibrium price and wait for rents to increase, at which point they can start collecting the surplus for themselves. $\endgroup$ – Bill Clark May 28 '19 at 23:26
  • $\begingroup$ Also, as for it being cheaper to buy than to rent, that also depends on the local market. In some places (such as the San Francisco Bay Area) rents are generally less than the mortgage payments. Why do the property owners take a loss? Because they plan/hope to make up the difference (and then some) in appreciation when they sell later on. They’re exchanging one form of economic rent (paid in contract rent by the lessee) for another (appreciation on the property itself) so it’s still rent, just of a different variety. $\endgroup$ – Bill Clark May 28 '19 at 23:29
  • $\begingroup$ interesting. morgage payments, or mortgage interest? $\endgroup$ – Sideshow Bob May 29 '19 at 9:18
  • 1
    $\begingroup$ That's something of a red herring then, as capital is being repaid: we should be discussing interest only mortgages in this context. I guess if this is a matter of definition, though, then an answer needs to address all the definitions in common use - I'm counting three on this thread to date? $\endgroup$ – Sideshow Bob May 29 '19 at 16:12

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.