What Is Rent Seeking?

Rent-seeking (foreign name: rent seeking, ^[1] also known as bid-renting) refers to those engaged in monopolizing social resources or maintaining a monopoly position in order to obtain monopoly profits (that is, economic rent) without engaging in production. A non-productive profit-seeking activity.
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Rent seeking (foreign name: rent seeking, ^[1]

Rent seeking is seeking

1. This indirectly causes distortions in the allocation of economic resources and prevents the implementation of more efficient production methods. The first is the result of wasting economic resources directly, and using time, energy, and money to lobby may be more efficient for rent seekers, but not efficient for society.

2. Lead to other levels of rent-seeking or "rent-avoidance" activities.

3. In order to deal with lobbying and bribery of rent-seekers, government staff need time and energy to fight back.

4. There are legal and illegal rent-seeking activities.

5. Enterprises seeking preferential treatment from the government and using special policies to maintain their exclusive monopoly are legal rent-seeking activities.

6. Bribery and smuggling are illegal rent-seeking activities. ^[1]

   Rent-seeking activities can take legal or illegal forms.

   Legal activities such as companies seeking preferential treatment from the government and using special policies to maintain their monopoly position; illegal activities such as bribery, smuggling and drug trafficking.

   Rent-seeking activities can be divided into three levels: first, rent-seeking for the extra income generated by government activities; second, rent-seeking for the government s deficiencies; For example, the number of taxis is limited, that is, only a certain number of licenses are issued. At this time, rent-seeking activities will be carried out on the following three levels. ^[1]

   In essence, imperfect government regulations have left room for public policy for rent-seeking. However, in general, rent-seeking appears mostly in government economic activities such as government pricing, government ordering, tariffs and quotas, and concessions.

   Government pricing

   In essence, the implementation of every government policy is a process of profit distribution. In the process of government regulation, the interests of producers and consumers are antagonistic, and politicians seeking to maximize the number of votes will inevitably raise the prices of certain regulated products to serve these interests. Among them, the most typical example is the administrative control imposed by the Chinese government on prices.

   The implementation of administrative controls on prices creates an artificial shortage of regulated resources. In the case of shortage, individuals must wait in line in order to obtain resources. At this time, some people will purchase government-limited resources at high prices in order to save the waiting time in line. The government prohibits high-price reselling, and this reselling will go underground and form

   The rent-seeking phenomenon is caused by both subjective and objective factors, as well as internal and external causes. Specifically, it mainly includes the following three aspects.

   Human self-interest

   In the market system, individuals' behavior is rational, and their first consideration is to maximize personal utility or profit. In political life, individuals' behaviors are also rational. They may claim to seek collective, social, and public interests, but they also have their rational considerations, namely, how to stand in the officialdom and have a bright future. Of course, we cannot deny that there are people who do not consider for themselves but only for others, but such people do not constitute a majority in the whole society.

   The self-interest factors in human nature drive people to self-love, self-respect, self-development, and self-actualization. In a regular market economy, the public interest can be realized through a market mechanism that turns public into private. However, in the public domain, there is a lack of a market mechanism for turning private into public, and there are many opportunities to turn private into public. At this time, once the selfishness of humanity outweighs altruism, he can use public power for private gain, and the result is corruption. Corruption will become inevitable because of selfishness in human nature and the opportunity to seek private power in the public domain. ^[2]

   Rent-seeking is a kind of activity that creates a monopoly. Monopoly will lead to inefficiency and waste of resources. That is, although monopoly brings additional income to rent-seekers, consumers under monopolistic conditions lead to higher prices and lower output. Remaining reduced.

   Gordon Tarlock first discussed rent-seeking behavior systematically in 1976. In a freely competitive market environment, the balance between supply and demand will automatically generate a competitive price, but the monopoly price under monopoly conditions will be higher than the competitive price. Caused by monopoly prices

   Figure 1 Social costs of monopoly under rent-seeking conditions ^[1]

   Production decreases, consumers lose surpluses, and producers receive rents at monopoly prices. ^[3]

   In Figure 1, Pc is the competitive price and Pm is the monopoly price. At competitive prices, the consumer surplus is G + R + L, while at the monopoly price, the actual consumer surplus is G, the area of the triangle L is the consumer surplus loss, and the rectangular area R represents the rent obtained by the monopolist. It is also the social cost of monopoly. ^[1]

   The public choice school has devoted a lot of energy to the question of whether monopoly rents will be squandered by wasteful expenditures to capture them as a whole. In this regard, Hillman and Katz introduced a risk aversion factor by assuming that everyone has a logarithmic utility function, thereby explaining the results of rent aversion risk aversion in this special case, as shown in Table 1. ^[1]

   N value [1]
   X / A	2	3	5	10	50	100	1000
   0.10	98	97	96	96	95	95	95
   0.20	95	94	93	92	91	91	91
   0.50	88	85	83	82	81	81	81
   1.00	76	74	72	70	70	69	69
   5.00	32	34	35	36	36	36	36
   10.00	18	twenty one	twenty two	twenty three	twenty four	twenty four	twenty four

   X / A is the rent obtained relative to the initial wealth of a rent-seeker, and n is the number of rent-seekers. It is worth noting that when the rent obtained is relatively smaller than the initial wealth of the rent-seeker (for example, 20% in Table 1), more than 90% of the rent value will be wasted due to rent competition.

   The social waste associated with bribery lies in the transaction costs of bribery, the compensation of lobbyists outside the hospital, and the time and money consumed by bureaucrats to compete in positions that can accept bribes. However, the public choice school believes that the social loss caused by rent-seeking is far more than that. Buchanan divides the social costs caused by rent-seeking behaviors into three categories: first, expenditures to maintain monopoly status; second, government departments' efforts to respond to such expenditures; third, various third-party causes caused by rent-seeking behaviors. Twisted behavior. They include the following:

   Efforts and expenses of rent seekers

   The efforts and expenditures made by rent-seekers refer to the expenditures of these enterprises and individuals in conducting various lobbying activities with the government in order to gain monopoly status, including human, material and financial resources. For example, in order to obtain government concession or funding, a company that manufactures and sells steel products will specifically send out attorneys or social activists to help them carry out rent-seeking activities, and even use gifts and money to clear layers of relationships. The resources that rent-seekers spend on these activities are a net loss of wealth and a waste of resources for the entire society.

   The cost of "political rent creation"

   The cost of "political rent-creation" includes government officials 'efforts to obtain or react to potential monopolies' expenditures. This is because, on the one hand, people who want to take advantage of political power will actively seek out people who can bring rent. In the process, his efforts are not only a waste of resources, but also an erosion and distortion of political power. On the other hand, if the government and its officials are clean, their anti-lobbying and anti-bribery targeting rent-seekers will still take some time and energy.

   Distorting monopoly and resource allocation

   Distorting resource allocation is also a net loss of social welfare. For consumers, rent-seeking companies will translate their rent-seeking costs into product costs and ultimately pass them on to consumers; for other companies, they will inevitably start rent-seeking competition in order to benefit from government policies. This will also distort the configuration of third-party resources.

   The transaction costs caused by rent-seeking behavior, the rewards of lobbyists outside the hospital, and the time and money spent by bureaucrats to compete in places that can receive bribes are a waste of resources for society. This waste is sometimes even amazing. Such as A. In his article "The Political Economy of Rent-seeking Societies," Kruger cited two typical countries, India and Turkey, and estimated the rents in these two countries due to excessive government intervention in the 1960s. . The results show that the waste of social resources caused by rent-seeking behavior in these two countries is very alarming, accounting for about 7% and 15% of the gross national product, respectively.

   Affects the fairness of income redistribution

   Rent-seeking not only causes waste and inefficient allocation of resources, but also causes redistribution of income. In the rent-seeking activities, consumers and unsuccessful renters and the victims of rent-seeking have suffered. Consumers get less goods due to monopoly payment of higher prices, and lose part of the consumer surplus; unsuccessful renters consume certain resources without receiving any returns; other manufacturers may be rent-seeking activities And pay extra costs, such as bearing more environmental taxes.

   In addition to successful rent seekers, the beneficiaries of rent-seeking can include governments or government officials and people with special talents (such as lawyers, economists, and out-of-court activists). This Ran distribution is beneficial to the strong groups in the social economy, but not to the disadvantaged groups, and is therefore one of the bad consequences of social redistribution.

   Social costs of political alienation

   In the sense of social costs, the negative impact of rent-seeking on the political and economic system cannot be ignored. Because rent-seeking is always closely linked to the government's political power, especially administrative power, it distorts the normal allocation of resources and has a serious negative impact on political life. For political power, rent-seeking behavior is an alienation and transformation of political power. In essence, it is a non-public use of public power. For the government, it is also a tumor of government development. If corruption is allowed to develop, it will lead to the demise of the government. As James Harrington put it: "Corruption in one government will mean the birth of another."

   In short, rent-seeking as a "direct unproductive activity" not only reduces the efficiency of resource allocation, affects the fair effect of income redistribution, but also destroys political order and political development. ^[1]