A Bit on Rent Seeking

Cherry BlossomsThis is a continuation of two previous posts: Is Competition Always Good, and Competition in Free Markets.

Prabhudesai referred to JEE (Joint Entrance Exam) in a comment and wrote, “An examination that has too much of competition resulting to very high cost of producing one engineer. For a poor country like India it is a massive blow.”

Is that type of competition good? That is socially wasteful competition. It belongs to a broad class of activities that are technically known as “rent seeking.”

One of the principal ways of obtaining wealth is by earning a profit. Profits are the difference between the cost of producing something and the price obtained from its sale. Profits indicate that wealth has been created and value delivered. Rent seeking occurs when one attempts to obtain some wealth without actually creating wealth. 

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