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[[Georgist]] economic theory describes rent-seeking in terms of land rent, where the value of land largely comes from the natural resources native to the land, as well as collectively paid for services, for example: [[State school]]s, law enforcement, fire prevention and mitigation services etc. Rent seeking to the Georgist does not include those persons that may have invested substantial capital improvements to a piece of land, but rather those that perform in their role as mere titleholder. This is the dividing line between a rent-seeker and a [[property developer]], which need not be the same person.{{Citation needed|date=November 2022}}
''Rent-seeking'' is an attempt to obtain economic rent (i.e., the portion of income paid to a [[factor of production]] in excess of what is needed to keep it employed in its current use) by manipulating the social or political environment in which economic activities occur, rather than by [[value added|creating new wealth]]. Rent-seeking implies extraction of uncompensated value from others without making any contribution to [[productivity (economics)|productivity]]. Because the nature of rent-seeking implies a fixed cost payment, only wealthy participants engage in these activities as a means of protecting their wealth from expropriation.<ref>{{cite book |last=Chakraborty |first=Shankha |year=2005 |title=Rent Seeking |journal=IMF Working Papers |volume=05 |publisher=International Monetary Fund |issue=43 |page=1 |doi=10.5089/9781451860627.001 |isbn={{Format ISBN|9781451860627}} |s2cid=15557383 | issn=1018-5941}}</ref>
In many market-driven economies, much of the competition for rents is legal, regardless of any harm it may do to an economy.{{Citation needed|date=January 2022}} However, various rent-seeking behaviors are illegal, such as the forming of [[cartel]]s or the [[Bribery|bribing]] of politicians.
Rent-seeking is distinguished in theory from [[Profit (economics)|profit-seeking]], in which entities seek to extract value by engaging in mutually beneficial transactions.<ref>{{cite web |url=http://ingrimayne.saintjoe.edu/econ/government/RentSeeking.html |title=Rent Seeking |first=Robert|last= Schenk |work=CyberEconomics |access-date=11 February 2007
===Tullock paradox===
The Tullock paradox is the apparent [[paradox]], described by economist [[Gordon Tullock]], on the low costs of rent-seeking relative to the gains from rent-seeking.<ref name="tullock1980">{{cite book |last=Tullock |first=Gordon |year=1980 |chapter=Efficient rent-seeking |title=Toward a theory of the rent-seeking society |editor=Buchanan, J. |editor2=Tollison, R. |editor3=Tullock, G. |publisher=Texas A&M Press |place=College Station |pages=97–112 |isbn=0-89096-090-9}}</ref><ref name="connes">{{cite
The paradox is that rent-seekers wanting political favors can bribe politicians at a cost much lower than the value of the favor to the rent-seeker. For instance, a rent seeker who hopes to gain a billion dollars from a particular political policy may need to bribe politicians with merely ten million dollars, which is about 1% of the gain to the rent-seeker. [[Luigi Zingales]] frames it by asking, "Why is there so little money in politics?" because a naïve model of political bribery and/or campaign spending should result in beneficiaries of government subsidies being willing to spend an amount up to the value of the subsidies themselves, when in fact only a small fraction of that is spent.<ref>{{cite book|first1=Luigi|last1=Zingales|title=A Capitalism for the People: Recapturing the Lost Genius of American Prosperity|url=https://books.google.com/books?id=USzXmw5CJ_MC|publisher=Basic Books|date=5 June 2012|isbn=978-0-465-02947-1|via=Google Books}}</ref>
====Possible explanations====
Several possible explanations have been offered for the Tullock paradox:<ref name=Zingales>{{Cite book |url=https://books.google.com/books?id=8rCZAgAAQBAJ&pg=PA75 |title=A Capitalism for the People: Recapturing the Lost Genius of American Prosperity |first=Luigi |last=Zingales |publisher=Basic Books |year=2014 |isbn={{Format ISBN|9780465038701}} |pages=75–78}}</ref>
# Voters may punish politicians who take large bribes, or live lavish lifestyles. This makes it hard for politicians to demand large bribes from rent-seekers.
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[[File:PapalPolitics2.JPG|thumb|''Antichristus'',<ref>{{cite book |url= https://books.google.com/books?id=NMQ_Ar84DCcC |title=Passional Christi und Antichristi |last1=Luther |first1=Martin |year=1521 }}</ref> a woodcut by [[Lucas Cranach the Elder]], of the pope using the temporal power to grant authority to a ruler contributing generously to the Catholic Church]]
The classic example of rent-seeking, according to [[Robert Shiller]], is that of a property owner who installs a chain across a river that flows through his land and then hires a collector to charge passing boats a fee to lower the chain. There is nothing productive about the chain or the collector, nor do passing boats get anything in return. The owner has made no improvements to the river and is not adding value in any way, directly or indirectly, except for himself. All he is doing is finding a way [[Parasitism|to obtain money]] from something that used to be free.<ref>{{cite web |last=Shiller |first=Robert |
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, or to impose regulations on competitors, in order to increase one's own market share.<ref>{{cite web |last1=Samples |first1=John |title=An Introduction to Rent Seeking |url= https://www.libertarianism.org/blog/introduction-rent-seeking |work=libertarianism.org |date=May 30, 2012 }}</ref> Another example of rent-seeking is the limiting of access to lucrative occupations, as by medieval [[guild]]s or modern state certifications and [[licensure]]s. According to some libertarian perspectives, [[taxi]] licensing is a textbook example of rent-seeking.<ref>{{cite book |last1=McTaggart |first1=Douglas |title=Economics |date=2012 |publisher= Pearson Higher Education |isbn=978-1-4425-5077-3 |page=224}}</ref> To the extent that the issuing of licenses constrains overall supply of taxi services (rather than ensuring competence or quality), forbidding competition from other [[vehicles for hire]] renders the (otherwise consensual) transaction of taxi service a forced transfer of part of the fee, from customers to taxi business proprietors.
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[[Regulatory capture]] is a related term for the collusion between firms and the government agencies assigned to regulate them, which is seen as enabling extensive rent-seeking behavior, especially when the government agency must rely on the firms for knowledge about the market. Studies of rent-seeking focus on efforts to capture special [[coercive monopoly|monopoly privileges]] such as manipulating government regulation of [[Capitalism|free enterprise]] competition.<ref>{{cite book |last1=Feenstra |first1=Robert |last2=Taylor |first2=Alan |year=2008 |title=International Economics |publisher=Worth Publishers |location=New York |isbn=978-0-7167-9283-3 |url-access=registration |url= https://archive.org/details/internationaleco0000feen }}</ref> The term ''monopoly privilege rent-seeking'' is an often-used label for this particular type of rent-seeking. Often-cited examples include a lobby that seeks economic regulations such as [[tariff]] protection, quotas, subsidies,<ref>{{cite book |first=Charles Kershaw |last=Rowley |title=The Political Economy of Rent-Seeking |url= https://books.google.com/books?id=OVkEPjHYik0C&pg=PA226 |year=1988 |publisher=Springer |page=226 |isbn=978-0-89838-241-9}}</ref> or extension of copyright law.<ref>{{cite journal |first=Lanier |last=Saperstein |title=Copyrights, Criminal Sanctions and Economic Rents: Applying the Rent Seeking Model to the Criminal Law Formulation Process |year=1997 |volume=87 |issue=4 |pages=1470–1510 |journal=The Journal of Criminal Law and Criminology |jstor=1144023 |doi=10.2307/1144023 |url= https://scholarlycommons.law.northwestern.edu/cgi/viewcontent.cgi?article=6939&context=jclc}}</ref> Anne Krueger concludes that "empirical evidence suggests that the value of rents associated with import licenses can be relatively large, and it has been shown that the welfare cost of quantitative restrictions equals that of their tariff equivalents plus the value of the rents".<ref name=Krueger1974/>
Rent-seeking through government enterprise takes the form of seeking [[subsidies]] and avoiding [[tariffs]]. This seems like the actions of a firm looking for investment in [[productivity]] but in doing so creates an exclusionary effect for more productive firms.<ref>{{cite journal |first1=Liu |last1=Baohua |first2=Lin |last2=Yan |first3=Chan |last3=Kam.C |first4=Fung |last4=Hung-Gay |title=The dark side of rent-seeking: The impact of rent-seeking on earnings management |year=2018 |volume=91 |issue=1 |pages=94–107 |journal=Journal of Business Research |doi=10.1016/j.jbusres.2018.05.037 |s2cid=158315455
Lotta Moberg presents an argument that export processing zones (EPZ) allow governments to choose exporting industries which receive tariffs allowing for rent seeking to take place. An example of this occurred in Latin America in the 1960s with [[Joaquín Balaguer]]'s response to pressure from the United States to open the Dominican Republic's export market. At the time, the United States was a massive trading partner for sugar while providing foreign aid and military support which allowed Balaguer's regime to take hold. Joaquín Balaguer used EPZ to allow for some markets to remain tariffed while appeasing the markets facing political pressures. This created a sub-optimal environment for exporters as they were able to invest in rent seeking activities ([[lobbying]]) to gain access to EPZ to gain [[tax]] and [[tariff]] exemptions.<ref>{{cite journal |last=Moberg |first=Lotta |title=Liberalizing rent-seeking: How export processing zones can save or sink an economy |year=2018 |volume=33 |issue=4 |pages=61–89 |journal=Journal of Private Enterprise |publisher=Association of Private Enterprise Education |location=Texas|issn=0890-913X |url-access=registration |url= http://journal.apee.org/index.php?title=2018_Journal_of_Private_Enterprise_Vol_33_No_4_Winter_parte4}}</ref>
In some cases, rent-seeking can provide a net positive for an economy. Shannon K. Mitchell's article "The Welfare Effects of Rent-Saving and Rent-Seeking" provides such an example through a model of rent-seeking when firms need to expand to obtain their exporting rents.<ref>{{cite journal |last=Shannon |first=Mitchell |year=1993 |title=The Welfare Effects of Rent-Saving and Rent-Seeking
Economists such as [[Lord Turner of Ecchinswell|Lord Adair Turner]], the former chair of the British [[Financial Services Authority]], have argued that [[Financial innovation|innovation in the financial industry]] is often a form of rent-seeking.<ref>{{cite report |last=Turner |first=Adair |title= Securitisation, Shadow Banking and the Value of Financial Innovation |publisher=Johns Hopkins University |date=19 April 2012 |series=School of Advanced International Studies |issue=The Rostov Lecture on International Affairs |url= http://www.fsa.gov.uk/static/pubs/speeches/0419-at.pdf |archive-url= https://web.archive.org/web/20121003063000/http://www.fsa.gov.uk/static/pubs/speeches/slides-0419-at.pdf|archive-date=3 October 2012 }}</ref><ref>{{cite speech |last=Turner |first=Adair |title=What do banks do, what should they do and what public policies are needed to ensure best results for the real economy? |website= FSA.gov.uk| date=17 March 2010 |page=27 |url= http://www.fsa.gov.uk/pubs/speeches/at_17mar10.pdf |archive-url= https://web.archive.org/web/20101007114307/http://www.fsa.gov.uk/pubs/speeches/at_17mar10.pdf|archive-date=7 October 2010 }}[?]</ref>
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Rent-seeking is not limited to any singular country or region. Rent-seeking manifests and impacts many different societies and economies.
The oil industry in Nigeria is heavily impacted by rent-seeking. Nigeria is a rich in oil reserves, but sees a large amount of its profits siphoned off by corrupt officials and individuals who are engaging in rent-seeking behavior, leading to a wide income gap between the wealthy and the poor, as well as widespread poverty and political instability.
Another example of rent-seeking can be found in the banking sector in Iceland. Leading up to the 2008 financial crisis, the Icelandic banks engaged in rent-seeking behavior by inflating asset prices, engaging in speculative investments and giving out large bonuses to executives. This eventually led to the collapse of Iceland's banking system and national economic crisis.
==Development of theory==
The phenomenon of rent-seeking in connection with monopolies was first formally identified in 1967 by [[Gordon Tullock]].<ref>{{cite journal |last=Tullock |first=Gordon |year=1967 |title=The Welfare Costs of Tariffs, Monopolies, and Theft |journal=Western Economic Journal |volume=5 |issue=3 |pages=224–32 |doi=10.1111/j.1465-7295.1967.tb01923.x }}</ref>
A 2013 study by the [[World Bank]] showed that the incentives for policy-makers to engage in rent-provision is conditional on the institutional incentives they face, with elected officials in stable high-income democracies the least likely to indulge in such activities vis-à-vis entrenched bureaucrats and/or their counterparts in young and quasi-democracies.<ref>{{cite journal |last=Hamilton |first=Alexander |year=2013 |title=Small Is Beautiful, at Least in High-Income Democracies
===Criticism===
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Rent-seeking can prove costly to economic growth; high rent-seeking activity makes more rent-seeking attractive because of the natural and growing returns that one sees as a result of rent-seeking. Thus organizations value rent-seeking over productivity. In this case, there are very high levels of rent-seeking with very low levels of output.{{citation needed|date=September 2014}} Rent-seeking may grow at the cost of economic growth because rent-seeking by the state can easily hurt innovation. Ultimately, public rent-seeking hurts the economy the most because innovation drives economic growth.<ref name=Murphy>{{Cite journal | url=https://scholar.harvard.edu/shleifer/publications/why-rent-seeking-so-costly-growth |title = Why is Rent-Seeking So Costly to Growth? |jstor=2117699 |journal = American Economic Review: Papers and Proceedings|volume = 83|issue = 2|pages = 409–414|year = 1993|last1 = Murphy|first1 = Kevin|last2 = Shleifer|first2 = Andrei|last3 = Vishny|first3 = Robert}}</ref>
Government agents may initiate rent-seeking, as by soliciting bribes or other favors from the individuals or firms that stand to gain from having special economic privileges, which opens up the possibility of [[Exploitation of labour|exploitation]] of the consumer.<ref name="Dauderstädt">{{cite book |editor=Michael Dauderstädt |editor2=Arne Schildberg |title=Dead Ends of Transition: Rentier Economies and Protectorates |year=2006 |publisher=Campus Verlag |isbn=978-3-593-38154-1 |url-access=registration |url=https://archive.org/details/deadendsoftransi0000unse }}</ref> It has been shown that rent-seeking by [[bureaucracy]] can push up the cost of production of [[Public good (economics)|public good]]s.<ref name=Niskanen>{{cite book |last=Niskanen |first=William |year=1971 |title=Bureaucracy and Representative Government |url=https://archive.org/details/bureaucracyrepre0000nisk |url-access=registration |publisher=Aldine-Atherton, Chicago|isbn={{Format ISBN|9780202060408}} }}</ref> It has also been shown that rent-seeking by tax officials may cause loss in revenue to the public exchequer.<ref name="Chowdhury 2006" />
[[Mancur Olson|Mançur Olson]] traced the historic consequences of rent seeking in ''The Rise and Decline of Nations''. As a country becomes increasingly dominated by organized interest groups, it loses economic vitality and falls into decline. Olson argued that countries that have a collapse of the political regime and the interest groups that have coalesced around it can radically improve productivity and increase national income because they start with a clean slate in the aftermath of the collapse. An example of this is [[Japanese post-war economic miracle|Japan]] after World War Two. But new coalitions form over time, once again shackling society in order to redistribute wealth and income to themselves. However, social and technological changes have allowed new enterprises and groups to emerge.<ref name=Mokyr>{{Cite journal | url=https://cpb-us-e1.wpmucdn.com/sites.northwestern.edu/dist/3/1222/files/2018/02/Mokyr-Nye-Southern-EconJournal-2k1u4v2.pdf | archive-url=https://web.archive.org/web/20191216230454/https://cpb-us-e1.wpmucdn.com/sites.northwestern.edu/dist/3/1222/files/2018/02/Mokyr-Nye-Southern-EconJournal-2k1u4v2.pdf
A study by Laband and [[John Sophocleus]] in 1988<ref name=Leeson>{{Cite book |jstor=j.ctt7t3fh|title=The Invisible Hook: The Hidden Economics of Pirates|last1=Leeson|first1=Peter T.|year=2009|isbn={{Format ISBN|9780691150093}} |publisher= Princeton University Press|page=191|title-link=The Invisible Hook}}</ref> estimated that rent-seeking had decreased total income in the US by 45 percent. Both Dougan and Tullock affirm the difficulty of finding the cost of rent-seeking. Rent-seekers of government-provided benefits will in turn spend up to that amount of benefit in order to gain those benefits, in the absence of, for example, the collective-action constraints highlighted by Olson. Similarly, taxpayers lobby for loopholes and will spend the value of those loopholes, again, to obtain those loopholes (again absent collective-action constraints). The total of wastes from rent-seeking is then the total amount from the government-provided benefits and instances of tax avoidance (valuing benefits and avoided taxes at zero). Dougan says that the "total rent-seeking costs equal the sum of aggregate current income plus the net deficit of the public sector".<ref name=Dougan>{{cite journal |last=Dougan |first=William R. |year=1991 |title=The Cost of Rent Seeking: Is GNP Negative? |journal=Journal of Political Economy |volume=99 |issue=3 |pages=660–664 |doi=10.1086/261773 |s2cid=154489617 }}</ref>
Mark Gradstein writes about rent-seeking in relation to public goods provision, and says that public goods are determined by rent seeking or lobbying activities. But the question is whether private provision with free-riding incentives or public provision with rent-seeking incentives is more inefficient in its allocation.<ref name=Gradstein>{{cite journal |last=Gradstein |first=Mark |year=1993 |title=Rent Seeking and the Provision of Public Goods |journal=The Economic Journal |volume=103 |issue=420 |pages=1236–1243 |doi=10.2307/2234249 |jstor=2234249 }}</ref>
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== Possible solutions ==
Rent-seeking has been a complex problem all around the world for a very long time, plaguing many economies.<ref name="Tollison1993">{{cite book |last=Tollison |first=Robert D. |title=Rent Seeking |publisher=Springer |year=1993 |isbn={{Format ISBN|978-0898382419}}}}</ref> It is very unlikely that we will ever see rent-seeking behavior completely eliminated around the world, but there are some potential solutions to mitigate its harmful effects.
=== Increased transparency and accountability in government and corporate operations ===
Rent-seeking mainly stems from under the radar operations, aided by the lack of transparency and accountability that involved parties face. Should measures be taken increase transparency and accountability in government and corporate operations, it is likely many parties would be deterred from engaging in rent-seeking behavior.<ref name="shleifer2018">{{cite book |last1=Shleifer |first1=Andrei |last2=Vishny |first2=Robert W. |title=The Grabbing Hand: Government Pathologies and Their Cures |publisher=Harvard University Press |year=2018 |isbn={{Format ISBN|978-0674010147}}}}</ref> Measures such as campaign finance reform, stricter lobbying regulations and increased oversight and reporting requirements for corporations could all aid in deterring rent-seeking activities.
=== Reduce the barriers to entry in industries that are prone to rent-seeking behavior ===
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== Further reading ==
* {{cite book |last=Chowdhury |first=Faizul Latif |title=Corrupt Bureaucracy and Privatization of Tax Enforcement in Bangladesh |year=2006 |publisher = Pathak Shamabesh |location = Dhaka |isbn=978-984-8120-62-0 |pages=25–34 }}
* {{cite encyclopedia |last=Ikeda |first=Sanford |editor-first=Ronald |editor-last=Hamowy |editor-link=Ronald Hamowy |encyclopedia=The Encyclopedia of Libertarianism |chapter = Rent Seeking |chapter-url = https://books.google.com/books?id=yxNgXs3TkJYC |year=2008 |publisher=[[SAGE Publishing|SAGE]]; [[Cato Institute]] |location=Thousand Oaks, CA |doi=10.4135/9781412965811.n259 |isbn={{Format ISBN|978-1412965804}} |oclc=750831024 |lccn=2008009151 |pages=422–23 }}
* {{cite book |last=Tullock |first=Gordon |title=The New Palgrave: A Dictionary of Economics |year=1987 |publisher=Palgrave Macmillan |isbn=978-0-333-37235-7 |volume=4 |pages=147–49 |chapter=Rent seeking |no-pp=true |title-link=The New Palgrave: A Dictionary of Economics }}
* {{cite book |last=Tullock |first=Gordon |title=The Rent-Seeking Society: The Selected Works of Gordon Tullock, Vol. 5 |year=2005 }}
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==External links==
* [https://www.economist.com/economics-a-to-z/r#node-21529810 Rent-Seeking], The Economist
* {{cite encyclopedia |last1=Henderson |first1=David R. |author-link1=David R. Henderson |encyclopedia=[[Concise Encyclopedia of Economics]] |title=Rent Seeking |url=http://www.econlib.org/library/Enc/RentSeeking.html |year=2008 |edition=2nd |publisher=[[Library of Economics and Liberty]] |location=Indianapolis |isbn={{Format ISBN|978-0865976658}} |oclc=237794267}}
* [https://web.archive.org/web/20151223122154/http://core.ac.uk/download/files/103/2792081.pdf ''Rent-Seeking as Process''] by Mushtaq Khan
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