Rent extraction () is a notion formulated by American

jurist A jurist is a person with expert knowledge of law; someone who analyzes and comments on law. This person is usually a specialist legal scholar, mostly (but not always) with a formal education in law (a law degree) and often a Lawyer, legal prac ...

Fred S. Mcchesney (1948–2017) in his 1987 essay ''Rent Extraction and Rent Creation in the Economic Theory of Regulation''. It refers to the

phenomenon A phenomenon ( phenomena), sometimes spelled phaenomenon, is an observable Event (philosophy), event. The term came into its modern Philosophy, philosophical usage through Immanuel Kant, who contrasted it with the noumenon, which ''cannot'' be ...

by which

entrepreneurial Entrepreneurship is the creation or extraction of economic value in ways that generally entail beyond the minimal amount of risk (assumed by a traditional business), and potentially involving values besides simply economic ones. An entrepreneu ...

politician A politician is a person who participates in Public policy, policy-making processes, usually holding an elective position in government. Politicians represent the people, make decisions, and influence the formulation of public policy. The roles ...

s take advantage of the threat of implementing new

regulation Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context. Fo ...

s to obtain political support from

interest group Advocacy groups, also known as lobby groups, interest groups, special interest groups, pressure groups, or public associations, use various forms of advocacy or lobbying to influence public opinion and ultimately public policy. They play an impor ...

s that want to be free from regulatory interference. This strategy is in particular useful when a group has made specific capital investments that can be expropriated in the political process. "Rent extraction" means the ability of lawmakers to squeeze payments (i.e. "rents") in some form in exchange for favorable legislation. The term presents a conscious, welfare maximization strategy by individual statespersons. It emerges when political decision makers derive benefits from the rents they generate. And the beneficiaries of rent extraction can also be local governments at all levels and the private individuals. Rent extraction, together with rent creation and

rent seeking Rent-seeking is the act of growing one's existing wealth by manipulating the social or political environment without creating new wealth. Rent-seeking activities have negative effects on the rest of society. They result in reduced economic effic ...

, determines the extent and distribution of

rent Rent may refer to: Economics *Renting, an agreement where a payment is made for the temporary use of a good, service or property *Economic rent, any payment in excess of the cost of production *Rent-seeking, attempting to increase one's share of e ...

s. However, the three are distinct and rent extraction is arguably the most important of the three, since the other two are ultimately motivated by rent extraction. Hillman and Katz found that there was a collision between the benefits of lower and upper level officials when it came to rent extraction. The more rent extraction that occurs at the lower levels of governance, the less the upper officials can "harvest". As a result, officials at the upper levels of rent collection have an incentive to adopt rules and regulations that limit the types of rent collection allowed by lower-level officials.

References

{{Corruption Factors of production Political corruption Public choice theory

See also

References