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Please answer assuming I have no background in economics. I keep coming across this term in various articles (Example) but get more confused every time I look up what it means.

I have read about the concept of economic rent and how it is different from colloquial use of the word rent. But it still doesn't help because the definition of economic rent is too technical for me :(

Here's an example of rent-seeking from Wiki: An example of rent-seeking in a modern economy is spending money on lobbying for government subsidies in order to be given wealth that has already been created.

Who is the rent-seeker in this example? And what is the rent - the money spent for lobbying or the subsidy availed?

It'd be great if someone can give a few more diverse examples (like where the State is rent-seeker or an individual businessman is rent-seeker). More importantly, please break down the example by who is the rent seeker and what is the rent. Thanks!

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    $\begingroup$ Investopedia's definition does not seem very technical: "Rent seeking (or rent-seeking) is an economic concept that occurs when an entity seeks to gain added wealth without any reciprocal contribution of productivity." $\endgroup$ – Giskard Jul 9 at 9:51
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    $\begingroup$ And what exactly is wrong with Investopedia's examples? Companies/industries getting government subsidies, companies/industries protected by tarrifs, occupational licensing, etc. $\endgroup$ – Giskard Jul 9 at 9:51
  • $\begingroup$ @Giskard As I said I have minimal background in economics and I find this definition technical. I'm not sure how wealth is different from income (is it just accumulated income?) and how productivity (or actual production) is tied up in defining the concept. That is why I am hoping to understand it better through examples. At this point I'm frustrated because the more number of times I read the definition the more I get confused. Knowing what is rent and who is rent-seeker in the examples is very likely to help me. $\endgroup$ – yathish Jul 10 at 11:56
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Rent-seeking

  1. Has no single agreed-upon definition (see the many definitions below).
  2. Is a fancy synonym for "bad for society" (see especially Tullock, 1989 below).
  3. Sometimes (but not always) refers specifically to lobbying (your example seems to be following this usage).

(In light of the above, my opinion/recommendation is that everyone should simply avoid using the term rent-seeking. If one simply means "bad for society", then one should just say that. If one is thinking of "lobbying", then one should just say that. However, I don't expect that my recommendation will be adopted because rent-seeking has the advantage of being an unfamiliar and technical-sounding term that helps writers sound more intelligent than they are.)


Krueger (1974) introduced the term rent-seeking:

In many market-oriented economies, government restrictions upon economic activity are pervasive facts of life. These restrictions give rise to rents of a variety of forms, and people often compete for the rents. Sometimes, such competition is perfectly legal. In other instances, rent seeking takes other forms, such as bribery, corruption, smuggling, and black markets.

Gordon Tullock credits himself with introducing the concept in 1967. Tullock himself gives various definitions of the term:

Tullock (1989):

My suggestion is that we use the term “rent seeking” (and I always have) solely for cases in which whatever is proposed has a negative social impact.

Contradicting himself, Tullock (1987):

‘Rent seeking’ refers to the investment of resources in efforts to create monopolies.


Definitions by some other writers:

Hyde & Borzutzky (2016):

political rent-seeking—the pursuit of unearned income streams by lobbying government for market privileges

Henderson (2008):

People are said to seek rents when they try to obtain benefits for themselves through the political arena. They typically do so by getting a subsidy for a good they produce or for being in a particular class of people, by getting a tariff on a good they produce, or by getting a special regulation that hampers their competitors. Elderly people, for example, often seek higher Social Security payments; steel producers often seek restrictions on imports of steel; and licensed electricians and doctors often lobby to keep regulations in place that restrict competition from unlicensed electricians or doctors.

Parson (2004):

the using up of real resources in an effort to secure the rights to economic rents that arise from government policies.

Bateman & McAdam (2003):

the act of trying to improve personal income at the expense of someone else, rather than by increased work or productivity

Khan (2000):

a person gets a rent if he or she earns an income higher than the minimum that person would have accepted, the minimum being usually defined as the income in his or her next-best opportunity ... Rents may take the form of higher rates of return in monopolies, the extra income from politically organized transfers such as subsidies, or the extra income which comes from owning scarce resources, whether natural resources or specialized knowledge. ...

Rent-seeking is the expenditure of resources and effort in creating, maintaining or transferring rents.

Black (1997):

Spending time and money not on the production of real goods and services, but rather on trying to get the government to change the rules so as to make one's business more profitable. This can take various forms, including seeking subsidies on the outputs or the inputs of a business. or persuading the government to change the rules so as to keep out competitors, tolerate or promote collusion between those already engaged in an activity, or make legally compulsory the use of professional services.

Rutherford (1995):

Monopolizing activity. This is much criticized as it produces a social waste rather than a social surplus.

Murphy, Schleifer, & Vishny (1993):

any redistributive activity that takes up resources

Pearce (1992):

The use of real resources in an attempt to appropriate a surplus in the form of a rent. An industry may use resources to lobby a government to impose a restriction such as a TARIFF on an imported good, so that the factors of productions in the industry earn payments in excess of their TRANSFER EARNINGS as a result of the higher market price for the good, which they produce. Consumers suffer two losses from rent seeking; the loss of CONSUMERS’ SURPLUS from the higher price and the loss of output from the resources devoted to rent-seeking. Resources may subsequently be devoted to rent protection. In international economics a related, though different, concept has been developed with the name, directly unproductive profit-seeking (DUP).

Bannock, Baxter, & Davis (1992):

Behaviour that improves the welfare of someone at the expense of the welfare of someone else. The most extreme example of rent-seeking behaviour is that of a protection racket, in which one group betters themselves without creating any welfare-enhancing output at all. Not all examples are criminal, however: the behaviour of labour or management when they put more effort into increasing their share of turnover, rather than into increasing the total volume of turnover, can be described as rent-seeking.

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  • $\begingroup$ I like the "income higher than the minimum that person would have accepted" definition. $\endgroup$ – user253751 Jul 10 at 11:09
  • $\begingroup$ Thanks very much. This is very helpful. However it doesn't address my specific questions about who is the rent-seeker, or what is the rent in the examples I've linked. I often come across articles where bureaucracy is accused of rent-seeking. The usage in this example for instance claims the State is rent seeker. Is the bribe the rent that the State is receiving? $\endgroup$ – yathish Jul 10 at 11:51
  • $\begingroup$ @yathish Henderson gives these three examples of "seekers" and "rent": (a) The elderly get higher Social Security payments. (b) The steel producers get restrictions on imports of steel. (c) Licensed electricians and doctors get regulations to restrict competition from unlicensed electricians or doctors. However, more generally, where the term rent-seeking is simply used as a fancy synonym for "bad for society", there may not be any clear "rent" or "seekers" we can identify. $\endgroup$ – Kenny LJ Jul 11 at 2:26
  • $\begingroup$ In your example, the seeker is the state bureaucrats and the rents they get are bribes and other benefits (that come from their power to decide who gets the permits). $\endgroup$ – Kenny LJ Jul 11 at 2:33
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My best definition: lobbying to gain special privileges from the government.

Rent refers to the concept of economic rent. Economic rent can be thought of as profit. The amount earned beyond costs. So rent seeking is looking to make more profit and specifically make more profit without producing anymore wealth. The best way of doing this is to rig the rules in your favor and get special privileges. Think of a kid playing a game a playground, it is easier to change the rules of the game in their favor than to become better at the game.

The special privileges can be anything from lower taxes, to reduced regulation, to a monopolistic charter, limiting competition etc. Rent seeking is particularly common among monopolistic companies. If I am a monopoly (by definition controlling the market) then I its nearly impossible to make more money so the company is incentivized to lobby the government for more privileges or to maintain current privileges.

Generic Examples:

  1. A business lobbying to reduce taxes on the specific industry it is in (rent seeker: business, rent: money made from less taxes)
  2. A bribe paid to the government for a favorable regulation (rent seeker: the payer of the bribe, rent: the regulation)

Specific Examples:

  1. Before the days of Uber taxi companies would lobby local governments to keep the number of taxi licenses or medallions static and then they would be able to charge more as demand outstripped supply.
  2. Guilds in medieval Europe would act as barriers of entry to industries and they would maintain their privileges by receiving special charters.

A common criticism of the rent seeking idea is it can be very difficult to determine if the rent seeking is beneficial or detrimental. In the first example I gave the business might be able to use the lower taxes to increase investment which would be good rent seeking. Usually rent-seeking is meant negatively, but it could be a positive thing in some cases.

I've never come across any examples of a state being called a rent-seeker but I suppose if a country was lobbying the World Trade Organization or UN or some international body that it could be called rent-seeking.

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  • $\begingroup$ Thanks for your lucid explanation! I often come across articles where bureaucracy is accused of rent-seeking. The usage in this example (originally linked in the question) for instance claims the State is rent seeker. Is the bribe the rent that the State is receiving? Your assertion that payer of the bribe is rent-seeker and the regulation or subsidy received is rent seems to be contradictory. Could you please clarify? $\endgroup$ – yathish Jul 10 at 11:53
  • $\begingroup$ I read over the example. I don't believe it is claiming the state is the rent seeker. I think it is trying to say that the state will leave itself open to rent-seeking from businesses. " The ‘business’ of issuing domicile certificates will take off at the lower levels of the administration. Companies will have to receive permits to hire for skills they can’t find in Haryana." These sentences make me think that the rent seeker here is business and the rent they are seeking is these permits. $\endgroup$ – Scc33 Jul 10 at 12:42
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    $\begingroup$ This sounds like a valid interpretation as well. However in that example I feel the intent was to imply bureaucrats resorting to bribes in order to give those permits. @KennyLG 's answer above and the comment discussion below it also allows for both these interpretations. Thanks for your time and help! $\endgroup$ – yathish Jul 11 at 15:48

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