Question

Greetings, I just got back from lunch with Suzy. Remember her? Not the one from accounting, the one who lobbies for us in Washington. Well anyway, she said there’s a bill moving through Congress that will reform the payment structure the government uses for Medicare. It actually doesn’t directly affect us at all, but Suzy was saying that bills like this are a great opportunity to slip in some “favors” that might benefit us. The idea is to get a friendly Congressman or Senator to add an amendment to the bill that would allocate $25,000,000 in tax breaks to any pharmaceutical companies headquartered in a county that has been affected by a hurricane in the last 3 years. The $25,000,000 would be split equally among all eligible companies that apply. Of course, it doesn’t hurt that we’re the only company that meets the eligibility criteria! :) I feel a little dirty pursuing this idea, especially since the hurricane didn’t really end up affecting us at all, but hey it did affect Orange County. Anyway, this isn’t illegal and we have to do what’s best for the company, right? You’re old friends with Joe Schmoe, aren’t you? As in the husband of Mrs. Schmoe, the Congresswoman from Georgia’s 4th district? Would you mind terribly giving him a call and seeing if you could push this? We do make regular contributions to Mrs. Schmoe, so I expect your call will be returned. Thanks a ton!

Explain what rent seeking by firms is, why it is bad, and how it can be counteracted. When is rent seeking most likely to happen? Can you find a measure of how large a problem it is? Be sure to include examples of actual rent seeking behavior by firms.

Answer 1

After reading the para, we first need to understand what rent seeking is

Rent seeking is actually a concept in which a firm tries to gain profit, wealth from the government without contributing in production activities.

For more understanding, some of the examples are when the firm vestibule the government for grants

Rent seeking is considered bad because it mainly makes the economy less competitive because they aim at securing economic rent and provide the economy more feedom

By using cost of community renewable energy helps somehow to prevent rent seeking and have a community vontrol over the activities of firms would further control to make the economy efficient.

It is most likely to happen when the firms wants to earn profit or gain by granting taxes, tarrifs from the government