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I've always seen rent defined as payment collected in excess of the seller's cost to make and hand over the product (not the whole product line, just the indivi
by kd0amg 12y ago
I've always seen rent defined as payment collected in excess of the seller's cost to make and hand over the product (not the whole product line, just the individual item). In a perfectly competitive market, price is driven down to match that cost, but the comparison with production cost is easier to apply in markets that aren't perfectly competitive (like licenses for a particular patent). Once an invention has been developed, the marginal cost (to the inventor) of someone else's use of that invention is zero. Any license fee at all that the inventor collects is in excess of what it costs the inventor for the licensee to use the invention, so the license fee is rent.
- joe_the_user 12y agoThe problem is such definition would result in a situation where the seller had no incentive at all to engage in the process of making and sell the product. Most theories of profit assume that an investor gets money approximately proportionate to the risk they take in investing as a well as to the opportunity cost of just sitting on their money.
- sliverstorm 12y agoIt sounds like you've defined rent == profit, which suggests you need to adjust your definition of rent. Economic rent is hard to wrap your head around; I defer to the Wiki: 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... In layman's terms I think it could be described as income for having/being rather than income for making/doing.
- baddox 12y agoThe wiki definition you quote is essentially what I was going off of. There are still terms that need to be defined, like "natural opportunities" and "contrived exclusivity," and that gets you right back to property rights.
- baddox 12y ago> I've always seen rent defined as payment collected in excess of the seller's cost to make and hand over the product What you described is nearly precisely the definition of market power. Economic rent is, from what I've read (IANAE), a special case of market power that applies to factors of production (particularly land).
- esoltas 12y agoYep, and I define it at the top of the most that way. Rent = profit in excess of opportunity cost of the production factor.