how does rent seeking work 
the concept of rent seeking was established in 1967 by gordon tullock and popularized by anne krueger in 1974 it evolved from the studies of adam smith who is often regarded as the father of economics the concept is based on an economic definition of rent defined as economic wealth obtained through shrewd or potentially manipulative use of resources 2smith s studies suggested that entities earn income from wages profit and rent to create profit usually requires the risk of capital with the goal of gaining a return earning wages comes from employment however rent is the easiest to obtain of the three income sources and can require little risk 2economic rent is the income earned from the utilization of resource ownership entities that own resources can lend them to earn interest rents lease them to earn rental income or utilize them in other income producing ways in general the term economic rent has evolved to mean receiving a payment that exceeds the costs involved in the associated resource entities therefore will take rent seeking steps to obtain economic rent that requires no reciprocal contribution of production one example of rent seeking is when a company hires lobbyists to encourage the government to change regulations to make it easier for them to earn profits vs trying to spend time and money on improving their goods in the marketplace rent seeking factors and examplesrent seeking is a byproduct of political legislation and government funding politicians decide the laws regulations and funding allocations that govern industries and government subsidy distributions these legislations and actions manifest rent seeking behaviors by offering economic rent with little or no reciprocity business social service programs are typically designed to provide aid for businesses with the goal of fostering economic prosperity for example businesses such as banks can lobby the government for help in the areas of competition special subsidies grants and tariff protection if a business succeeds in getting laws passed to limit their competition bail them out of economic hardship or create barriers to entry for others it can achieve economic rents without any added productivity or capital at risk 1lobbying for the lessening of occupational licensing requirements is another very specific example of rent seeking doctors dentists airline pilots and many other fields require licensing to practice however in many u s states this licensing process is expensive and time consuming often regulations exist due to past lobbying efforts from existing industry members if certification and license obligations prevent newcomers from competing fewer professionals may share the revenue thus a more significant portion of money accrues to each existing member without additional economic benefit also since limits to competition can be a driver for prices consumers may be required to pay more issues arising from rent seekingrent seeking can disrupt market efficiencies and create pricing disadvantages for market participants it has been known to cause limited competition and high barriers to entry those that benefit from successful rent seeking obtain added economic rents without any added obligations this can potentially create unfair advantages specifically providing wealth to certain businesses that lead to greater market share at the detriment of competitors lastly rent seeking wealth is typically a function of taxpayer funding these tax revenues are used to provide economic wealth for rent seekers but may or may not improve the economic climate or produce any benefits for taxpayers at large this can lead to disparaging funds that lack regeneration and require higher taxes in the future 