What is Rent Seeking?

Rent seeking is a process in economics in which an individual or other entity attempts to generate revenue by exploiting a resource of some type. This is in contrast to generating revenue by means of producing products that are sold for profit, and similar forms of transactions. The term itself comes from the age-old practice of buying up all the available land within a given area, and earning profits by leasing the land to others for use in farming or as living space. While the general concept of rent seeking has been around for centuries, the term itself was first used in 1974.

Over time, rent seeking has also come to include the practices of attempting to promote and establish governmental regulations within a given industry. The aim of these regulations is usually to create monopoly privileges for a select few members of the business community, effectively allowing them to earn profits from the efforts of others without actually engaging in the production process themselves. This is usually accomplished by gaining a controlling interest in the natural resources necessary for the production process, and providing access to those resources for a price.

There are a number of examples of rent seeking in the business world today. Lobbyists employed by specific business concerns may attempt to persuade governments to enact tariffs that provide those businesses with protection from and an advantage over competitors. Import tariffs sometimes provide these types of advantages. Investors may band together for the purpose of acquiring real estate they believe will be needed for business expansion in the future, positioning themselves to lease the land back to those businesses wishing to make use of the natural resource.

It is important to note that while the idea of rent seeking and profit making are very similar, there are some key differences. With profit making, the idea is to create a situation in which the buyer and seller are mutually satisfied with the outcome of the transaction. The process allows for free competition and is entered into willingly by both parties, who acknowledge there are other options with the potential to be mutually satisfying. By contrast, rent seeking is a situation where buyers have little to no option when it comes to acquiring what they need to do business; there is no third party supplier they can do business with and achieve the same results. Thus, buyers do not have a choice in how to acquire what they need, and must deal with the monopoly in order to engage in the transaction.