# Understanding Rent Seeking: Economics Definition & Examples

## What Is Rent Seeking?

Rent seeking, a concept introduced by economist Gordon Tullock, refers to the pursuit of [wealth](https://www.investopedia.com/terms/w/wealth.asp) without contributing to society's overall productivity or well-being. It often involves manipulating the political or regulatory environment to gain advantages such as subsidies, tax breaks, or favorable legistlation.

Common forms include lobbying for government-funded subsidies or influencing regualtions to limit competition. These practices can lead to social harm and market ineffciencies, and the article explores examples and broader implications of rent-seeking behavior.

### Key Takeaways

*   Rent seeking involves gaining wealth without contributing to societal wealth, often by manipulating political systems.
*   Lobbying for subsidies or regulation changes is a common form of rent seeking.
*   Rent seeking can disrupt market efficiency, creating disadvantages for consumers and new companies.
*   Originating from the work of Gordon Tullock and Anne Krueger, the concept highlights the economic definition of "rent."
*   Rent seeking relies heavily on legislation and government funding distributions that may perpetuate economic imbalance.

![Rent Seeking](https://www.investopedia.com/thmb/ikQj5_Z6vJdJmTxKP8r73u6Pu18=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/rentseeking.asp-FINAL-f070abe454c14204b6f372cc30064838.png)

*— Jiaqi Zhou / Investopedia*

## Understanding the Mechanism of Rent Seeking

[Gordon Tullock](https://en.wikipedia.org/wiki/Gordon_Tullock) introduced rent seeking in 1967, and Anne Krueger popularized it in 1974.. The concept evolved from [Adam Smith's](https://www.investopedia.com/updates/adam-smith-economics/) studies. He is often called the father of economics. The concept is based on an economic definition of “rent,” defined as economic wealth obtained through shrewd or potentially manipulative use of resources.

According to Smith, entities earn income from wages, profit, and rent. To create profit usually requires the risk of [capital](https://www.investopedia.com/terms/c/capital.asp) with the goal of gaining a return. Earning wages comes from employment. Rent is often the easiest income source to obtain and usually involves little [risk](https://www.investopedia.com/terms/f/financialrisk.asp).

Economic rent refers to income earned from owning and using resources. Entities that own resources can lend them to earn interest rent, lease them to earn rental income, or utilize them in other income-producing ways.

In general, the term “economic rent” has evolved to mean receiving a payment that exceeds the costs involved in the associated resource. Entities, therefore, will take rent-seeking steps to obtain economic rent that requires no reciprocal contribution of production.

> **Important**
>
> One example of rent seeking is when companies hire lobbyists to encourage the government to change regulations to make it easier for them to earn profits, rather than try to spend time and money on improving their goods in the marketplace.

## Key Factors and Real-World Examples of Rent Seeking

Political legislation and government funding often lead to rent seeking. Politicians create laws, regulations, and funding allocations for [industries](https://www.investopedia.com/terms/i/industry.asp) and [subsidies](https://www.investopedia.com/terms/s/subsidy.asp). These legislations and actions manifest rent-seeking behaviors by offering economic rent with little or no reciprocity.  

### How Businesses Engage in Rent Seeking

Business social service programs are typically designed to provide aid for businesses with the goal of fostering economic prosperity.

For example, businesses such as banks can lobby the government for help in the areas of competition, special subsidies, [grants](https://www.investopedia.com/terms/g/grant.asp), and [tariff](https://www.investopedia.com/terms/t/tariff.asp) protection. If a business succeeds in getting laws passed to limit their competition, bail them out of economic hardship, or create [barriers to entry](https://www.investopedia.com/terms/b/barrierstoentry.asp) for others, it can achieve economic rents without any added productivity or capital at risk.  

### The Role of Licensing in Rent Seeking

Lobbying for the lessening of occupational licensing requirements is another very specific example of rent seeking. Doctors, dentists, airline pilots, and many other fields require licensing to practice. However, in many U.S. states, this licensing process is expensive and time-consuming.

Often, regulations exist due to past lobbying efforts from existing industry members. If certification and license obligations prevent newcomers from competing, fewer professionals may share the revenue. Thus, a more significant portion of money accrues to each existing member without additional economic benefit. Also, since limits to competition can be a driver for prices, consumers may be required to pay more.

## Challenges and Economic Impact of Rent Seeking

Rent seeking can disrupt [market efficiencies](https://www.investopedia.com/terms/m/marketefficiency.asp) and create pricing disadvantages for market participants. It has been known to cause limited competition and high barriers to entry.

Those that benefit from successful rent seeking obtain added economic rents without any added obligations. This can potentially create unfair advantages, specifically providing wealth to certain businesses that lead to greater [market share](https://www.investopedia.com/terms/m/marketshare.asp) at the detriment of competitors.

Lastly, rent-seeking wealth is typically a function of [taxpayer](https://www.investopedia.com/terms/t/taxpayer.asp) funding. These tax revenues are used to provide economic wealth for rent seekers but may or may not improve the economic climate or produce any benefits for taxpayers at large. This can lead to disparaging funds that lack regeneration and require higher taxes in the future.

## Is Rent Seeking Illegal?

In general, competition for rent is legal, regardless of any harm it may do to an [economy](https://www.investopedia.com/terms/e/economy.asp). However, various rent-seeking behaviors are illegal, such as the forming of [cartels](https://www.investopedia.com/terms/c/cartel.asp) or the bribing of politicians.

## Why Is Rent Seeking Bad for the Economy?

Rent seeking can make markets less efficient by creating price disadvantages for consumers or companies. Rent-seeking behavior can also create artificial bars to entry for new companies, stifling innovation.

## Are Landlords Rent Seekers?

Not generally. The use of the word “rent” can create some confusion here. The term “rent” in rent seeking is based on the economic definition of “rent,” which is defined as economic wealth obtained through shrewd or potentially manipulative use of resources. That said, it’s possible for landlords to engage in rent-seeking behavior.

## The Bottom Line

Rent seeking is an economic practice where individuals or businesses aim to increase their wealth without contributing to society's overall value, often undermining market efficiency. Common examples include lobbying for government subsidies, grants, or regulations that favor certain companies over competitors.

These practices can raise barriers to entry, distort [free market](https://www.investopedia.com/terms/f/freemarket.asp) dynamics, and lead to higher prices for consumers while discouraging innovation. Although often legal, rent seeking raises ethical concerns because it redistributes resources unfairly and can harm economic welfare. Understanding rent seeking is necessary to recognizing its effects on both the economy and society.

> **Article Sources**
>
> 1.  Krueger, Anne O., via American Economic Association. “[The Political Economy of the Rent-Seeking Society](https://assets.aeaweb.org/asset-server/files/9452.pdf).”
>     
> 2.  Corporate Finance Institute. “[Rent-Seeking](https://corporatefinanceinstitute.com/resources/knowledge/economics/rent-seeking/).”
>     
> 3.  Forbes. “[What Is Rent-Seeking Behavior?](https://www.forbes.com/sites/davidmarotta/2013/02/24/what-is-rent-seeking-behavior/?sh=6ccfc1dc658a)”