A concept that has its origins in the 1970s, rent seeking is a type of behaviour which has been cited by renowned economists such as Joseph E. Stiglitz as a key cause of inequality. In this article and future ones, we will explore what the actual theory is, its impacts and examples of it being carried out, as well as whether it can be used for good.
Rent seeking is a concept originated by Gordon Tullock in 1967, but the action itself has been carried out since the beginning of human civilisation. Rent seeking is a practice where profit, or rent, is made without creating any additional value or productivity – simply put, when you make money without contributing anything to the economy. One obvious example of this is the role of a landlord – they receive rent by simply owning land and letting people live or work on it. Although it could be argued that the tenants can then become more productive and thus the action did create value, there is no direct value creation from the landlord, and so it is still counted as a form of rent seeking.
As referenced in the article caption, rent seeking is often cited as a cause of inequality, and this is strongly highlighted in Joseph Stiglitz’s book ‘The Price of Inequality’. The basis of this argument is that those who own the land and capital (two of the factors of production) can appropriate rent from these, which draws money away from those who can’t afford to buy the land and capital, while placing more in the hands of those who are already wealthy enough to afford these factors of production. Again, we could argue that by investing in land and capital, these wealthy people are creating the potential for increased output and efficiency, leading to economic growth which will benefit everyone. However, this is flawed as it will still lead to more inequality. This is expressed quite bluntly with Thomas Piketty’s equation r>g – essentially, the rate of return of capital is greater than the rate of economic growth, and so even if the economy grows and average real incomes rise, the wealthy will get wealthier at a quicker rate which further widens the gap.
In the coming articles, I will explore two examples of rent seeking – lobbying and government contracts. I’ll also post a book review of ‘The Price of Inequality’, which I’ve mentioned above, so be sure to look out for those!
Economics 101 
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