ECR. Neutralization of Economic Rent

... How can a market (MKT) neutralize its inefficiencies.

Economic rent occurs when a market is inefficient. How can they be neutralized?

First we must understand Economic Rent: (from wikipedia)

In economics, economic rent is any payment to a factor of production in excess of the cost needed to bring that factor into production. In classical economics, Economic rent is any payment made (including imputed value) or benefit received for non-produced inputs such as location (land) and for assets formed by creating official privilege over natural opportunities (e.g., patents). In neoclassical economics, economic rent also includes income gained by beneficiaries of other contrived exclusivity, such as labor guilds and unofficial corruption.

Economic rent should not be confused with producer surplus, or normal profit, both of which involve productive human action. Economic rent is also independent of opportunity cost, unlike economic profit, where opportunity cost is an essential component. Economic rent should be viewed as unearned revenue, whereas economic profit is a narrower term describing a more theoretical concept of unearned surplus income greater than the next best risk-adjusted alternative. Unlike economic profit, economic rent cannot be eliminated by competition, since all value from natural resources and locations yield economic rent.

In regard to labor, economic rent can be created by the existence of guilds or labor unions (e.g., higher pay for workers, where political action creates a scarcity of such workers). For a produced commodity, economic rent may also be due to the legal ownership of a patent (a politically enforced right to the use of a process or ingredient). For operating licenses, it is the cost of permits and licenses that are politically controlled as to their number, regardless of the competence and willingness of those who wish to compete in the area being licensed. For most other production, including agriculture and extraction, economic rent is due to a scarcity of natural resources (e.g., land, oil, or minerals). When economic rent is privatized, the recipient of economic rent is referred to as a rentier.

So are economic rents 'bad'? Capitalists seek every advantage to get them. Unions lobby and organize so they can collect them.

It is hard to say whether they are good are bad, but what they are is 'unearned revenue'. If they are unearned, where do they come from? Are they theft if they are unearned? This would certainly make them 'bad'.

I don't know that we can answer the question with any certainty, but what we can do is attempt to neutralize them.

Traditionally, economic rents have been taxed if they can be isolated, or fees have been charged for the rights to put oneself in the position to earn them.

We will contend there is a better way. Who is harmed in the case of an economic rent? The buyer of the good or services has to give up more than they 'should' have to if a circumstantial situation did not exist.

Our proposal is not to 'refund' the economic rent, or to tax the economic rent, but to put the payer of the economic rent in a position to participate in any future gain made from the economic rent.

Our money should allow for this.


Provide for the neutralization of economic rents.

The neutralization of economic rent can be accomplished with the predistribution of economic rent (PRF).

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