Question

What is the most egregious example of rent-seeking (within the firm or division) you have seen in your professional experience?

Answer 1

The concept behind rent-seeking is ancient, though the coinage itself is recent; some forty years ago seeking was added to convey the effort to acquire such entitlement. What it was added to was the concept of economic rents, the ability to charge more for a factor of production than it would be worth under pure competition. Rent-seeking is basically going after income derived from an unfair advantage.

Rents, like all other forms of what we now refer to as corruption--gatekeeping, collusion, restraint of trade, kickbacks, graft, payola--the actual basis of feudal economics until Smith, Say, Ricardo and other economists came along to explain that, no, wealth comes from engaging in production and competition rather than avoiding it.

For example, the privileged were awarded with "livings," whether it was a parson given a parish and able to receive tithes or a duke entitled to a share of the proceeds from working his land. When the Puritans arrived in New England, they enforced instead the idea of land held in common. A resident of a town could fish, fowl or forage its fields and streams and other common areas for free but not an outsider. If you wanted to do the same on a private holding, the owner was at liberty to charge a fee, a rent. Suddenly, your perch or partridge come at a cost.

Some rents--patents and copyrights, for example--are viewed as a social good overall. Some just exist. Microsoft and Intel came to hold de facto rents in some core products. Medieval guilds were an extortion racket pure and simple. You wish to know a trade, spend a lot of time and money to learn the craft, then, assuming you play along, work comes your way. And modern unions continue the practice. A public worker in 1960 averaged eighty percent the earnings of an average private one, a sacrifice in return for job security. That's when we got the first true bargaining public-sector unions. Now, it's 144 percent not counting million-dollar-a-decade taxpayer-guaranteed pensions while retaining the job security. To be emphatic, that's not how much they've gained but how much they've gained relative to private workers--an extravagant level of rent-seeking.

Instead of creating wealth, a firm seeks to obtain financial gains from others through alteration/ manipulation of the environment where economic activities take place. A popular example for rent-seeking is political lobbying by companies. These are primarily done by companies in order to make economic gains through government action.

This might be done by a company to get subsidy from the government for the product which it produces or increasing tariff rates by the government for its services, etc. Such a practice neither leads to creation of new wealth, nor does it benefit the society.