Title: What Is Rent-Seeking Behavior?
Headings: What Is Rent-Seeking Behavior?
What Is Rent-Seeking Behavior?
Content: Imagine a thriving sea trade in which ships carrying cargo receive a 20% profit on the value of the goods. Now imagine the first pirate who arms his boat with cannons and rent-seeks the profit. The pirates are not producing any value of their own but are spending their own resources to capture the surplus of the shipping trade. If the pirate ship captures just one in every hundred ships, the average profit for the traders will drop to 19%. Meanwhile the pirate ship is seizing a 100% profit. There is incentive to join the rent-seeking pirate trade. By the time 10 pirates are competing for plunder, the profit of honest merchants has dropped to just 10%. At 20 pirates, there would be no profit remaining and no incentive to engage in the shipping trade. The rent-seeking of pirates motivates merchants to spend their resources to prevent the theft. They sail with an armed escort.