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Ricardo and the farmers

Differential rents, rent creation, and rent seeking in competitive markets

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Abstract

It is investigated under what conditions rents can be won through interference in the market through price subsidies. It is shown that owners of factors of production have an interest in price subsidies in the product market (which they can motivate with reference to “consumer interests”) only if the factor supply is not perfectly price elastic, the incentive for rent-seeking increasing as the price elasticity of supply decreases. It is further demonstrated that this can occur in the case of differential rents. Since differential rents are found primarily in the use of land, land owners, i.e. farmers, should have especially high incentives to engage in rent-seeking activities.

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Notes

  1. See, for instance, Buchanan et al. (1980), Rowley et al. (1988), Congleton et al. (2008a, 2008b), as well as the excellent comprehensive introduction to the latter two volumes, Congleton et al. (2008c).

  2. See, for instance, Wickström (1993).

  3. This can easily be motivated with reference to “consumer interests”, since the consumers of the good will profit from the subsidy, as long as they do not pay the fiscal costs financing the subsidy.

  4. See, for instance, Wickström (1990) or Wickström (1993)

  5. This function describes the interaction between the lobbying group and the government agencies deciding on price subsidies. This is not further modeled here; we simply assume that this interaction is well established, and can be described by a (differentiable) well-defined function.

  6. In the case of many rent-seekers, one can assume that each rent-seeker follows a Nash strategy leading to a Nash equilibrium in rent-seeking efforts. The rent seekers will then, for each factor, maximize the corresponding value of \(\pi\) as given by Eq. 5 under the assumption that the other t’s are given. The optimal value of each t would consequently be a function of all the other t’s. Since we are here focusing on the source of the rent, we neglect the competition between the rent-seekers.

References

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  • Congleton, R. D., Hillman, A. L., & Konrad, K. A. (Eds.). (2008). 40 years of research on rent seeking 1: Theory of rent seeking. Springer.

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Acknowledgements

I thank an anonymous referee of this journal for very constructive comments on the first version of this essay.

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  1. Andrássy-Universität, Budapest, Hungary

    Bengt-Arne Wickström

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Correspondence to Bengt-Arne Wickström.

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Wickström, BA. Ricardo and the farmers. Const Polit Econ 35, 141–149 (2024). https://doi.org/10.1007/s10602-023-09404-1

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