Economic Rent

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Economic rent is income earned by a factor of production, such as land, labour or capital, above the minimum amount needed to keep it in its current use.

In everyday language, rent means payment for using property. In economics, rent has a broader meaning: it is any excess payment beyond what would be needed to bring a resource into use.

For example, if a footballer would be willing to play professionally for 100,000 a year but is paid 5,000,000 because of their rare talent, most of their earnings are economic rent. Similarly, land in a prime city location earns high rent because its supply is fixed, not because more effort goes into it.

Economic rent often arises from scarcity, unique skills, natural resources, government licences, patents or market power. Because it is not needed to keep the resource in use, taxing economic rent can raise revenue with less effect on behaviour than many other taxes, which is why some economists favour land value taxes.

Economic rent is closely related to rent-seeking, which is the pursuit of such excess income through political or legal means rather than through creating new value.

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