Question

In: Economics

7. What is rent seeking and what are the economic implications?

7. What is rent seeking and what are the economic implications?

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Expert Solution

When a corporation uses its resources to secure an unwarranted monetary benefit from outside forces, whether directly or indirectly, without providing anything in return to them or society, it is called a rent-seeking business.
Instead of generating capital, a company aims to obtain financial benefits from others by altering / manipulating the atmosphere in which economic operations are carried out. A common example of rent-seeking is company-led political lobbying. This are undertaken mainly by businesses with a view to make economic progress through policy intervention.

This may be done by a company to get government subsidy for the product it makes or to raise government tariff rates for its services etc. Such a practice does not create new wealth nor does it benefit society.

Rent-seeking doesn't tend to increase economic productivity. On the other hand, for the purpose of having financial benefits, it can be an easier alternative to development. During economic slowdowns or recessions, the practice could be particularly favourable when businesses can not easily increase output.

Often, rent-seeking practices are widely seen as preventing creativity. Instead of developing new innovative revenue-generating methods, businesses can rely on the practice to increase their own wealth.


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