Answer to Question #210177 in Macroeconomics for PAZ

Question

Why is rent seeking bad for the economy

Answer 1

Solution

Rent seeking is the effort to increase one's share of existing wealth without creating new wealth.

It affects the economy negatively due to the following reasons

1. Reduces economic efficiency through misallocation of resources leading to loss of government revenues
2. Creates pricing disadvantages for market participants causing limited competition and high barriers of entry into the markets.
3. Rent seeking leads to waste of valuable resources and redistributes from large unorganized population to small organized groups.
4. Harms the growth of the economy through reduced competition and innovation.