Lecture: Rent-Seeking in Economics and Public Choice Theory
Key Concepts
Rent-Seeking: A behavior aimed at increasing one's wealth without creating new wealth for others. It involves seeking profits without contributing to productivity or value.
Example: The Story of the Lord
Lord's Action: Inherited wealth and land; does no work but seeks more wealth.
Mechanism:
Installs a chain across a river and charges fishermen a fee to pass.
This action adds no value to society, only profits the lord.
Costs of Rent-Seeking
Direct Costs:
Fishermen pay fees, leading to higher fish prices.
Consumers face increased costs for fish.
Opportunity Costs:
Lord invests in non-productive ventures (e.g., chain) rather than societal improvements (e.g., school repairs).
Moral Costs:
Fishermen feel it's unfair, might turn to similar rent-seeking behavior.
Concept: Economists describe collaboration between rent-seekers (e.g., fisherman) and moral advocates (e.g., environmentalist lobbyist).
Outcome:
River access limited by a fence, leading to higher prices and controlled access.
Formation of fishery department under royal patronage, charging for fishing licenses.
Economic Impact
Wealth for rent-seekers (lord, lobbyist, fisherman) without societal benefits.
Rent-seeking reduces economic efficiency, misallocates resources, hinders wealth creation, reduces government revenue, increases inequality, and may lead to national decline.
Historical Context
David Ricardo: Coined the term "rent-seeking," building on ideas from Adam Smith.
Adam Smith (1776): Described landlords reaping benefits without contribution, increasing costs for laborers.
Reflection
Question: Identify rent-seekers in your environment - government, corporations, streets, or personal experiences.
Additional Info
Sprouts' Videos: Licensed under Creative Commons for educational use.
Support Sprouts: Visit Patreon for more information and support.
Resources
Visit Sprouts' website for more educational content.