Entrepreneurship in Rent seeking Enviornment

Rent seeking is defined as a situation in which an individual or firm makes money by manipulating economic environment rather than by profit making through trade and production of wealth. Rent seeking can be obtained by some settings and traditional profit seeking obtains by others, it is not because of differing modes of rationality among economic agents but because of the institutions that characterize those settings. (Roby Rajan Carl Journal 1988)

When wealth transfers it can be achieved through government provided wealth transfers. Economic agents will expend efforts toward attempting to influence government actions in their favor in order to accumulate wealth.

In the context of the economy of a poor country, welfare losses induced by rent seeking are likely to be more significant than the losses originating from the traditional price distorting effects of taxes and subsidies.

Few ways by which it can have an effect on the economy of the country are by:

· Conferring of a monopoly through a license or patent (e.g., for a time being, usually a way to have a competitive advantage)

· Obtaining resources at below the market prices (e.g., publicly provided land at cheaper rates than market to influential groups)

· Protection from competition (e.g., restriction of number of players in a market)

· Manipulation of government subsidies, tariff and tax policies in the developing economies

From a theoretical and practical standpoints, rent seeking can have significant effects on the ecnomoy. If "buying" a favorable regulatory environment is cheaper than building more efficient production, a firm will choose the cheaper option, and then reaping incomes entirely unrelated to any contribution to total wealth or well-being. Thus, it is one process, which needs to be controlled by the government specially, so that government can initiate people to work entrepreneurially.

References:

· Entrepreneurship & Rent Seeking in India by Roby Rajan Carl Journal Vol.8, No. 1 1988
· Buchanan, James M. “Rent Seeking and Profit Seeking.” In Toward a Theory of the Rent Seeking Society 1980Kirzner, Israel. Competition and Entrepreneurship. Chicago: University of Chicago Press, 1973.