What is rent-seeking, and how does it differ from the kinds of profit maximization and profit-seeking that we discussed in previous chapters? Provide an actual or hypothetical example of rent seeking by firms in an industry, by a union, or by a professional association (for example, physicians, school teachers, or lawyers). Why do elected officials often accommodate rent-seeking behavior, particularly by special-interest groups located in their home states?

Rent-seeking is a strategy to gain additional profit or income beyond the minimum payment required to keep running the resources at someone else's expense. In rent-seeking, the rent seeker looks to increase its income for a resource it provides by shifting the burden of cost to others. Rent-seeking is possible only through government help.

For instance, suppose a businessman is making money through a dance club running in a locality but creates a lot of noise pollution the whole night because he does not pay any taxes. He is maximizing his profit at the cost of social welfare, which is borne by society. It is rent-seeking behavior.

Rent-seeking is different from other profit maximization techniques. In those techniques, the entrepreneur tries to maximize their profit by adjusting their output and prices, increasing production efficiency, technology, and production quality. Profit maximization techniques work according to market ethics, while rent-seeking looks up to the government's influence.

Suppose a concerned department for environment protection in the government passes a law that requires companies to install solar panels in an area to reduce the wastage of electricity during summers. The law requires that these solar panels be certified by a private regulatory authority that charges $500 for this. The head of the firm belongs to a very influential family.

This amount is unnecessary but made compulsory by the law. This is rent-seeking.

In the above example, the elected officials made a law to benefit the private regulatory authority. The idea is to gain support from the people as it seems like an environmental protection plan and at the same time helps a company earn income.

The elected officials' main agenda behind rent-seeking behavior is to be re-elected in the upcoming elections. Therefore, they find out how the special interest can help them win over the next elections.