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In public choice theory and in economics, rent-seeking involves seeking to increase one's share of existing wealth without creating new wealth. Rent-seeking results in reduced economic efficiency through poor allocation of resources, reduced actual wealth-creation, lost government revenue, increased income inequality,[1] and (potentially) national decline.



The idea of rent-seeking was developed by Gordon Tullock in 1967,[2] while the expression rent-seeking itself was coined in 1974 by Anne Krueger.[3] The word "rent" does not refer specifically to payment on a lease but rather to Adam Smith's division of incomes into profit, wage, and rent.[4] The origin of the term refers to gaining control of land or other natural resources.




Rent-seeking is distinguished in theory from profit-seeking, in which entities seek to extract value by engaging in mutually beneficial transactions.[6] Profit-seeking in this sense is the creation of wealth, while rent-seeking is "profiteering" by using social institutions, such as the power of the state, to redistribute wealth among different groups without creating new wealth.[7] In a practical context, income obtained through rent-seeking may contribute to profits in the standard, accounting sense of the word.

Tullock paradox[edit]

Tullock paradox refers to the apparent paradox, described by Tullock, on the low costs of rent-seeking relative to the gains from rent-seeking.[8][9]

The paradox is that rent-seekers wanting political favors can bribe politicians at a cost much lower than the value of the favor to the rent-seeker. For instance, a rent seeker who hopes to gain a billion dollars from a particular political policy may need to bribe politicians only to the tune of ten million dollars, which is about 1% of the gain to the rent-seeker. Luigi Zingales frames it by asking, "Why is there so little money in politics?" because a naive model of political bribery and/or campaign spending should result in beneficiaries of government subsidies being willing to spend an amount up to the value of the subsidies themselves, when in fact only a small fraction of that is spent.

Possible explanations[edit]

Several possible explanations have been offered for the Tullock paradox:[10]

  1. Voters may punish politicians who take large bribes, or live lavish lifestyles. This makes it hard for politicians to demand large bribes from rent-seekers.
  2. Competition between different politicians eager to offer favors to rent-seekers may bid down the cost of rent-seeking.
  3. Lack of trust between the rent-seekers and the politicians, due to the inherently underhanded nature of the deal and the unavailability of both legal recourse and reputational incentives to enforce compliance, pushes down the price that politicians can demand for favors.


An example of rent-seeking in a modern economy is spending money on lobbying for government subsidies in order to be given wealth that has already been created, or to impose regulations on competitors, in order to increase market share.[11] Another example of rent-seeking is the limiting of access to lucrative occupations, as by medieval guilds or modern state certifications and licensures. Taxi licensing is a textbook example of rent-seeking.[12] To the extent that the issuing of licenses constrains overall supply of taxi services (rather than ensuring competence or quality), forbidding competition by livery vehicles, unregulated taxis and/or illegal taxis renders the (otherwise consensual) transaction of taxi service a forced transfer of part of the fee, from customers to taxi business proprietors.

The concept of rent-seeking would also apply to corruption of bureaucrats who solicit and extract "bribe" or "rent" for applying their legal but discretionary authority for awarding legitimate or illegitimate benefits to clients.[13] For example, tax officials may take bribes for lessening the tax burden of the taxpayers.

Regulatory capture is a related term for the collusion between firms and the government agencies assigned to regulate them, which is seen as enabling extensive rent-seeking behavior, especially when the government agency must rely on the firms for knowledge about the market. Studies of rent-seeking focus on efforts to capture special monopoly privileges such as manipulating government regulation of free enterprise competition.[14] The term monopoly privilege rent-seeking is an often-used label for this particular type of rent-seeking. Often-cited examples include a lobby that seeks economic regulations such as tariff protection, quotas, subsidies,[15] or extension of copyright law.[16] Anne Krueger concludes that "empirical evidence suggests that the value of rents associated with import licenses can be relatively large, and it has been shown that the welfare cost of quantitative restrictions equals that of their tariff equivalents plus the value of the rents".[17]


Development of theory[edit]







Possible consequences[edit]



Government agents may initiate rent-seeking – such agents soliciting bribes or other favors from the individuals or firms that stand to gain from having special economic privileges, which opens up the possibility of exploitation of the consumer.[25] It has been shown that rent-seeking by bureaucracy can push up the cost of production of public goods.[26] It has also been shown that rent-seeking by tax officials may cause loss in revenue to the public exchequer.[13]





See also[edit]


  2. ^ David R. Henderson. "Rent Seeking". 
  4. ^ "Rent-Seeking". Investopedia. 2003-11-25. Retrieved 2016-10-27. 
  5. ^ Robert Shiller. The Best, Brightest and Least Productive?, Project Syndicate
  6. ^ Robert Schenk. "Rent Seeking". CyberEconomics. Archived from the original on January 3, 2006. Retrieved 2007-02-11. 
  8. ^ Tullock, Gordon (1980), "Efficient rent-seeking", in Buchanan, J.; Tollison, R.; and Tullock, G., Toward a theory of the rent-seeking society, College Station: Texas A&M Press, pp. 97–112 
  9. ^ Connes, Richard. "Loss Aversion and the Tullock Paradox". SSRN 467901Freely accessible. 
  10. ^ Zingales, Luigi (2014), A Capitalism for the People: Recapturing the Lost Genius of American Prosperity, Basic Books, pp. 75–78, ISBN 9780465038701 
  11. ^ Sample, John. "An Introduction to Rent Seeking". 
  12. ^ McTaggart, Douglas (2012). Economics. Pearson Higher Education. p. 224. ISBN 978-1-4425-5077-3. 
  14. ^ Feenstra, Robert; Taylor, Alan (2008). International Economics. Worth Publishers, New York. ISBN 978-0-7167-9283-3
  15. ^ Charles Kershaw Rowley (1988). The Political Economy of Rent-Seeking. Springer. p. 226. ISBN 978-0-89838-241-9. 
  16. ^ Lanier Saperstein (1997). "Copyrights, Criminal Sanctions and Economic Rents: Applying the Rent Seeking Model to the Criminal Law Formulation Process". The Journal of Criminal Law and Criminology. Northwestern University. 87 (4): 1470–1510. doi:10.2307/1144023. JSTOR 1144023. 
  17. ^ Krueger, Anne. O (1974). "The Political Economy of the Rent Seeking Society", The American Economic Review, 64(3): 291–303.
  20. ^ Tullock, Gordon (1967). "The Welfare Costs of Tariffs, Monopolies, and Theft". Western Economic Journal. 5 (3): 224–32. doi:10.1111/j.1465-7295.1967.tb01923.x. 
  24. ^ Murphy, Kevin M., Andrei Shleifer, and Robert W. Vishny (1993). "Why is Rent-Seeking So Costly to Growth?," The American Economic Review, 83(2): 409–14.
  27. ^ Mokyr, Joel and John V. C. Nye. 2007. "Distributional Coalitions, the Industrial Revolution, and the Origins of Economic Growth in Britain". Southern Economic Journal, 74(1):50–70.
  29. ^ Dougan, William R. (1991). "The Cost of Rent Seeking: Is GNP Negative?" Journal of Political Economy, 99(3): 660–664.
  30. ^ Gradstein, Mark (1993). "Rent Seeking and the Provision of Public Goods," The Economic Journal, 103(420): 1236–1243.
  31. ^ Stiglitz, Joseph E. (2012-06-04). The Price of Inequality: How Today's Divided Society Endangers Our Future. p. 32. Norton. Kindle Edition.

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