Rent seeking
Topic: Market Structures, Market Failure and Competition · NCERT: Beyond NCERT
Meaning
Rent seeking means spending money and effort to capture gains by influencing policy, not by creating new wealth. Examples are lobbying for licences, quotas, subsidies or protective tariffs. The resources used this way produce nothing new. They only move existing income from one group to another, so society is poorer overall. Anne Krueger analysed it in 1974, and it is a key cause of government failure.
Example
Under India's licence raj, firms competed for scarce import licences rather than for customers. Krueger estimated that the rents from these licences were about 7.3% of national income in 1964.
Don't confuse with
- Profit seeking: a firm earns profit by making a better or cheaper product, which adds to output. Rent seeking earns gains through political favour and adds nothing.
- Regulatory capture: this is the outcome where the regulator serves the industry. Rent seeking is the wider activity of chasing favours.