Rent Seeking in Economics: Definition, Theory & Examples

Instructor: Brianna Whiting

Brianna has a masters of education in educational leadership, a DBA business management, and a BS in animal science.

In this lesson we will learn about rent seeking. We will define the term, and learn where it originated. Next we will look at some examples and finally conclude the lesson with a summary and a quiz.

A First look at Rent-Seeking

Let's imagine that you and your spouse have three kids. Each day, you both go to demanding jobs and then run your kids to all of their activities through the evening hours. By the time you finally arrive home for the night, it's time to go to bed and start the whole routine over again the next day. One evening, after a long day of work and running kids, your spouse suggests that the two of you go out on the town for some relaxation and a break from your busy lives. The first thing you do is hire a babysitter that will care for your kids and take over the task of running kids to their nightly activities.

When the night arrives for your date, you give instructions to the babysitter and head out. You and your spouse have a great time going out to dinner and then catching a movie. You arrive back at your home where you release the babysitter from her duties and send her on her way. Except, you did not pay her for your services. You see, you used your babysitter to gain a night out, but did not reciprocate any benefits back to her in the way of payment. What you did, was do something called rent-seeking.

The Definition of Rent-Seeking

So we know that rent seeking has something to do with using another party to obtain some kind of gain. But how does this process really work? Well, a company of some sorts or an individual first uses what resources they have in order to get some sort of economic gain from another party. After doing this, that company or individual doesn't give any benefits back to society. In other words, a company gets what they want, but doesn't repay the favor in any way that may benefit society. As you can probably imagine, this isn't the nicest thing to do.

Origin of Rent-Seeking

Back in 1967, a man by the name of Gordon Tullock created the idea of rent-seeking. He believed that when people try to get benefits for themselves via the political stage, they're said to be 'seeking rents.'

This is usually done through support or aid for a good that they produce, by obtaining a tariff for that good, or by means of regulations that hinders their competition. In other words, rent-seeking is accomplished in economics when a company or individual is attempting to lobby the government in order to obtain special privileges. However, Tullock also recognized that in doing so, there were costs involved and that these costs may reduce some of the gains by the beneficiaries.

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