Rent Seeking

Economic rent is the economic return over opportunity cost. Rent seeking is the commitment of scarce resources to capture returns created artificially. For example, imagine that Iowa farmers want to receive higher prices for their corn. A political candidate could campaign to expand the use of corn-based ethanol energy. Ethanol is not an efficient producer of energy, but expanding its use would push out the demand for corn and increase prices (and short-run profits) for Iowa farmers. Thus, Iowa farmers would be rent seeking against the rest of the public by using political power to get an economic benefit, to the detriment of other, more beneficial, resource use. This rent seeking is a real cost to society because competition for governmentally created rents, unlike the “real” rents discussed earlier, does not generate increased supply.