Rent Seeking by Utilities and Others

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Rent seeking is when an individual, organization, or firm seeks to make money by manipulating control of the economic environment rather than by making a profit through trade and production of value.


A wide range of activities are presumably of this type including agricultural price supports, occupational licensing, labor unions, import and export quotas, and education subsidies.


Rent seeking imposes costs on the participants that they often do not recognize. Most economic activities increase the overall wealth of society. In markets that are driven by rent seeking, competition to attain the dominant position becomes more important than creating value. Market participants are spending resources, in both the controls world and in the regulated utilities, more to keep others away than to innovate.


Robert L. Bradley, Jr. of the Institute for Energy Research argues that energy companies must "refrain from rent-seeking whereby mandates are endorsed in order to harm competitors. Such opportunism creates a game of musical chairs in which there will be fewer chairs each time the music stops."


From a theoretical standpoint, the moral hazard of rent-seeking can be considerable. If "buying" a favorable regulatory environment is cheaper than building more efficient production, a firm may choose the former option, reaping incomes entirely unrelated to any contribution to total wealth or well-being. This results in a sub-optimal allocation of resources — money spent on lobbyists and counter-lobbyists rather than on research and development, improved business practices, employee training, or additional capital goods — which retards economic growth. Claims that a firm is rent-seeking therefore often accompany allegations of government corruption, or the undue influence of special interests.


Examples

The Business Council for a Sustainable Energy Future, a coalition of gas, wind, solar, and geo-thermal power producers and related firms, is lobbying for deep cuts in greenhouse gas emissions.


The Environmental Technology Council, a successor to the Hazardous Waste Treatment Council (HWTC), wants to ensure that various wastes, such as fluorescent bulbs, are covered by hazardous-waste regulations.


The Alliance for Responsible Thermal Treatment (ARTT), an HWTC spinoff of incinerator operators, wants to prevent the burning of hazardous waste in cement kilns, and thereby eliminate its members' toughest competitors.


Major utilities recently lobbied to require the sale of electric vehicles in California and the northeastern United States and have sought policies that would subsidize the purchase of electric cars at the ratepayers' expense.


Ethanol producers attempted to secure a portion of the lucrative oxygenate market for federally mandated reformulated gasoline.


A primary purpose of the Conservation Reserve Program is to increase farm commodity prices by taking acreage out of production, though the program does little to control agricultural runoff.



References

http://www.heartland.org/policybot/results/21990/Climate_Science_Supports_Realism_Not_Alarmism.html

http://www.automatedbuildings.com/news/apr08/columns/080328094638considine.htm

https://mises.org/journals/rae/pdf/RAE1_1_8.PDF

http://www.cato.org/pubs/regulation/regv19n4/v19n4-4.pdf

Eisenhans, Hartmut (1996). State, class, and development. Radiant Publishers. ISBN 978-8170272144.

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