The goal of many economists is to increase the size of the pie. By this we mean that we want to increase the degree to which everyone in an economy gets what he/she wants. In a free enterprise economy, the incentive to gain wealth for oneself (the size of your slice of the pie) is in sync with the desire many economists have to increase the total size of the pie itself. This was most famously exemplified by Adam Smith within the Wealth of Nations in 1776 when Smith talked about the invisible hand, leading producers thinking about only their own self interest to serve the common good.
When an actor in the economy gains by decreasing the size of the pie we economists call this rent seeking, and although hard-line members of the Austrian school would disagree, it is possible for rent seeking to occur without an initiation of force or fraud being present. An example of rent seeking I have been thinking of is that of bargaining. When a seller, Joseph, sells a computer for $500 we can say apodictically and apriori that he valued the computer at the time of sale at less than $500, let's say $450 for this illustration, otherwise he wouldn't have sold it. And let's also say that Brian buys the computer for $500, he must have valued the computer at more than $500, otherwise he wouldn't have bought it, let's say he valued it at $550. Deducing from the preference of Joseph and Brian we can say that the total surplus created from trade (or the degree to which the pie increased in size) is $100, the difference between what Joseph valued the computer at and what Brian valued it at.
Rent seeking comes into play when one of the two people involved in an exchange argue, or bargain over the price to be paid. The act of bargaining is a utility decreasing activity for most people, and the total surplus from trade therefore decreases from the act of bargaining. This means that whoever initiates bargaining is acting to increase his own portion of the surplus from trade (his portion of the pie) at the expense of the pie as a whole, and is thus, rent seeking. This does not mean that the person who haggles is in any way immoral in my view, economics on the whole is a positive science. We could imagine the computer being sold by Joseph for $549, and Brian, feeling cheated by this, attempting to haggle for a better price. The egalitarian instincts of many of us may make many of us feel that Brian is right in demanding a better price, but this does not change the fact that he is attempting to gain at the expense of the economy as a whole.
Rent seeking related to bargaining is not limited only this the act of bargaining but to some of the education done in business schools. I would imagine that classes are taught quite regularly on the subject with students learning how to bargain better in attempts to capture more of the surplus from trade for themselves or the company which employs them. All this does not mean that any form of government intervention could better the situation, for as anyone well versed in economics should know government action is itself riddled with market failures and public goods. Those vulnerable to the nirvana fallacy would likely suggest some policy or intervention to remedy this problem, but I, on the other hand, having been exposed to the far greater problems caused by government when they try to solve such problems don't favor government intervention in this case.
In summary, bargaining within the surplus from trade is rent seeking while bargaining outside of this zone can be seen as economically efficient.
When an actor in the economy gains by decreasing the size of the pie we economists call this rent seeking, and although hard-line members of the Austrian school would disagree, it is possible for rent seeking to occur without an initiation of force or fraud being present. An example of rent seeking I have been thinking of is that of bargaining. When a seller, Joseph, sells a computer for $500 we can say apodictically and apriori that he valued the computer at the time of sale at less than $500, let's say $450 for this illustration, otherwise he wouldn't have sold it. And let's also say that Brian buys the computer for $500, he must have valued the computer at more than $500, otherwise he wouldn't have bought it, let's say he valued it at $550. Deducing from the preference of Joseph and Brian we can say that the total surplus created from trade (or the degree to which the pie increased in size) is $100, the difference between what Joseph valued the computer at and what Brian valued it at.
Rent seeking comes into play when one of the two people involved in an exchange argue, or bargain over the price to be paid. The act of bargaining is a utility decreasing activity for most people, and the total surplus from trade therefore decreases from the act of bargaining. This means that whoever initiates bargaining is acting to increase his own portion of the surplus from trade (his portion of the pie) at the expense of the pie as a whole, and is thus, rent seeking. This does not mean that the person who haggles is in any way immoral in my view, economics on the whole is a positive science. We could imagine the computer being sold by Joseph for $549, and Brian, feeling cheated by this, attempting to haggle for a better price. The egalitarian instincts of many of us may make many of us feel that Brian is right in demanding a better price, but this does not change the fact that he is attempting to gain at the expense of the economy as a whole.
Rent seeking related to bargaining is not limited only this the act of bargaining but to some of the education done in business schools. I would imagine that classes are taught quite regularly on the subject with students learning how to bargain better in attempts to capture more of the surplus from trade for themselves or the company which employs them. All this does not mean that any form of government intervention could better the situation, for as anyone well versed in economics should know government action is itself riddled with market failures and public goods. Those vulnerable to the nirvana fallacy would likely suggest some policy or intervention to remedy this problem, but I, on the other hand, having been exposed to the far greater problems caused by government when they try to solve such problems don't favor government intervention in this case.
In summary, bargaining within the surplus from trade is rent seeking while bargaining outside of this zone can be seen as economically efficient.
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