Description of rent seeking as applied to political corruption

Essay by grahammurphUniversity, Bachelor'sC, March 2004

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Brief definition of "rent": To avoid misunderstandings, "rent" in this context has nothing to do with "rent" in the sense of rent for land or property. In the modern context of "rent seeking", rent strictly speaking means financial income which is not matched by corresponding labour or investment in the market sense. Rent in this sense arises from manipulation of the economic environment (e.g. monopolies, import and trading restrictions, and subsidies).

As resources are consumed in rent seeking which are then no longer available for productive activities, rent seeking involves heavy social costs. Rent seeking requires that it be possible and advantageous for the relevant actor to do something which is not advantageous for the system as a whole.

As a rule of thumb, this requirement is more likely to be met under bureaucracies remote from the market than in competitive systems of organisation. This does not, however, mean that every bureaucracy is automatically burdened by rent seeking and that every company is automatically efficient.

Rent seeking constitutes a form of political behaviour, which can be described as lobbying superior regulatory bodies.

Rent seeking and corruption: Rent seeking is extensively linked with corruption (although politicians' favours to clients or lobbying by interest groups are not in themselves corrupt behaviour - a certain exchange of information between politicians and the population is essential for the functioning of the system). Rent seeking can be described as corruption at the point where politicians and bureaucrats specifically exploit their current opportunities to manipulate the existing institutional framework so that in future it serves their own private interests.

Corruption is also present if illegal financial benefits - e.g. bribes - are used for rent seeking. Here, members of "developed" nations should not be too quick to point the finger at developing nations.