Rent-Seeking Activities
Rent-seeking has been one of the most important concepts in the last fifty years of economics and, unfortunately, the most inappropriately labelled concept in economics. Gordon Tullock originated the idea in 1967, and Anne Krueger introduced the concept of labels in 1974.
In economics, people are said to be rent seekers when they obtain the benefit from themselves from their political area. Thus, rent-seeking in economics means to increase one share of existing wealth without generating new wealth.
According to Anne Kruger (Chapter 26 Rent Seeking pg 48), “Rent seeking is a resource using activity undertaken by individuals or groups from which they seek to profit but from which activity there will be no increase in output”.
According to (Pasour EC, “Rent seeking some conceptual problems and implications 1983 pg 1) “, “rent-seeking is an attempt to economic rent paid to a factor of production in excess of what is needed by manipulating the social or political environment in which economic activities occur rather than by creating new wealth”.
Thus, rent-seeking can be described as the activity of individuals and firms who accomplish to obtain wealth transfers with the help of the state. In rent-seeking activities, nothing specific and productive contribution is being made to the economy, but the rent seeker only works for his own self-interest, and he himself benefits from the rent-seeking activities by making certain manipulations in environmental conditions.
Various examples of rent-seeking activities are:
- Government Bailouts
- Piracy
- Lobbying the government
- Direct Income Transfers by the government.
Thus it can be concluded that rent-seeking activities never increase productivity nor it show an increase in the national value of the economy. It can be said that rent-seeking activities neither lead to the creation of wealth nor it benefit the economy. Thus, rent-seeking activities have a negative impact on society.
People use to seek rent because they want the benefit for themselves. They typically are engaged in such type of activities because they want a subsidy if they are manufacturing or producing any good or services. They want to acquire tariffs on the goods they are producing so as to hamper their competitors. Elderly people use to seek rent because they want higher social security payments. Thus, each and every person used to seek rent for his own self-interest.
Thus, rent-seeking is the use by a company or individual who wants to obtain economical gain from others without giving any benefit to society through wealth creation.
Directly Unproductive Profit-Seeking (DUP) Activities
There is one more type of activity which occupies a very important place in economics. These activities are known as directly unproductive profit-seeking activities. This term was coined by Bhagwati in 1982.
He said that these are those activities which have no direct productive purpose, nor have they not increased any consumer utility, nor do they contribute to the production of any good or service that would increase utility. These types of activities are always being motivated by the desire to make a profit from market changes created by government policies.
According to Bhagwati 1982, DUP activities can be defined as ways of making a profit, that is, income, by undertaking activities which are directly unproductive in the sense that they produce pecuniary returns but do not produce goods or services that enter a conventional utility function or inputs into such goods or services.
Such types of activities are profitable activities, but their output is zero. These activities use real resources to produce profit, but no output and these type of activities reduces the availability of resources which are present in the economy.
According to Bhagwati 1982 (The New Palgrave Dictionary 2008 second edition), the various examples of DUP activities are:
- Tariff-seeking lobbying is aimed at earning a profitable income by changing the tariff and, therefore, the factor income.
- Revenue-seeking lobbying helps in the diversion of government revenues towards oneself as a recipient of revenue.
- Monopoly-seeking lobbying, whose objective is to create an artificial monopoly, thereby generating rents from such lobbying of goods and services.
- Tariff evasion or smuggling helps to eliminate the quota and generate higher returns by exploiting the prices between legal and illegal imports.
Thus, it can be said that DUP activities are wasteful activities whose output is simply zero in terms of goods and services available in the economy and moving towards a conventional utility.
Read More in: Theory of Public Finance
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- Role of Government under Cooperation and Competition
- Role of Government in Economic Development and Planning
- Concept of Public Goods, Private Goods, and Merit Goods
- Concept of Market Failure and Functions of Government
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- Market Failure and Functions of Government: Externalities
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- Problem of Allocation of Resources: Public & Private Mechanisms
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- Politico Eco Bureaucracy: Concept & Explanation
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- Benefit Theory or Voluntary Exchange Theory
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- Samuelson’s Model of Public Expenditure
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