Excessive Rents Research Articles

Mapping modern economic rents: the good, the bad, and the grey areas

Abstract There is increasing consensus that modern capitalist economies suffer from excessive rent extraction in both financial and real economy sectors. However, scholars have yet to develop a coherent analytical framework for identifying the common characteristics of modern economic rents. In particular, there has been little attention paid to distinguishing ‘good’ rents—key to innovation and growth—from ‘bad’ forms which contribute to economic stagnation and inequalities of wealth and income. This paper takes some first steps in this direction. We first review the existing rent theory most pertinent to this distinction, including classical political economy, the early twentieth century institutionalists, neoclassical perspectives and Keynes’s analysis of financial rentiers. Secondly, we map and conceptualise some key stylised features of modern rents, drawing on descriptive empirical evidence. We then identify the key questions that these developments raise for rent theory, elaborating a new research and policy agenda.

An Empirical Investigation of Ridesharing and New Vehicle Purchase

Problem definition: In this work, we examine how ridesharing platforms affect changes in short-term vehicle purchasing. On the one hand, if the introduction of such platforms motivates owners to use the idle capacity of their existing vehicles to accrue rents, vehicle sales might fall. On the other hand, if the platform induces would-be drivers to purchase new vehicles in order to participate, vehicle sales might rise. Academic/practical relevance: Whereas operations management researchers have begun to broach this subject analytically, this work provides empirical evidence of the impact of ridesharing platforms on new vehicle ownership. Further, we assess heterogeneity in the effect across vehicle type and location. Methodology: We examine this tension using a unique data set of new vehicle registrations in China. In doing so, we exploit the variation in the timing of Uber entry using a difference-in-difference approach. Results: Findings suggest Uber entry is associated with a significant short-term increase in private new vehicle ownership, indicating that consumers actively change their stock of held resources to capture excess rents offered by the platform. These effects exclusively manifest among vehicle brands that qualify for the platform. Further, inasmuch as sales of vehicles with smaller displacement increase more than large-displacement vehicles, results indicate that the effect of Uber entry varies considerably across vehicle types. Finally, results indicate that the effects are stronger in locations where established public transportation options are weaker. Managerial implications: Results provide initial evidence that manufacturers can benefit from the emergence of the sharing economy, especially manufacturers whose products align with the needs of platform participants. For policy makers, our findings further undercut claims made by platforms that the individuals working on them are exploiting already existing resources, suggesting some form of nascent professionalism on the part of platform workers. Funding: The research was supported by the Key Program of National Natural Science of China [Grant 71832010]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/msom.2022.1183 .

What drives sustainable development? Evaluating the role of oil and coal resources for selected resource rich economies

The goal of this study is to determine the link between the availability of natural resources, the use of renewable energy, and NRE in the economic development of five selected nations from 1990 to 2020: the United States, China, Canada, Brazil, and India. For stationarity and cointegration studies, this study employs the cross-sectionally enhanced dickey fuller test and Westerlund's (2007) cointegration approach, adopting the CS-ARDL model for the chosen variables on economic development of the chosen nations. The CS-ARDL model was used to derive the empirical results, which show that consumption of FFC and carbon emissions both speed up economic growth in the short and long terms. However, this study also found that for all the chosen countries, the impact of these two factors is greater in the long term than in the short term. While NRE sources like coal and oil rent have a detrimental impact on economic growth, the same is true with REC. One might infer from the outcomes of this study that the resource curse concept affects both industrialised and developing nations. Whereas excessive rents and resource consumption necessitate the discovery of additional natural resources to meet rising consumer demand. However, meeting the high demand for nonrenewable or REC sources proves to be both a short-term and long-term burden for the economic growth of these particular countries.

Sustainable Use of the Environment, Planetary Boundaries and Market Power

Many of the environment and natural resources that constitute key “safe operating spaces”, as designated by planetary boundaries, are being exploited by a handful of large firms with considerable market share. In this paper, we discuss how the environment and natural resources that occur within a safe operating space can be treated as an exploitable finite stock. We use an optimal depletion model to show how the extraction of these exhaustible assets can be managed optimally, and allow for adjustment in price paths due to technological innovation and environmental externalities. Given the growing market concentration and monopoly power in the key economic sectors that exploit the environment and resources that constitute many safe operating spaces, we then explore how monopoly conditions can alter the extraction and price path of the environmental assets over time compared to that under competitive market conditions. We show that the monopoly may be compatible with more sustainable use, by extending the life of the exploitable, depletable stock, at the expense of firms capturing excessive resource rents from exploitation. This tradeoff means that any policies implemented to tax the excessive monopoly rents need to be designed without compromising the sustainable use of the environment. The tax revenue raised can be channeled into protecting or regenerating natural assets that are essential for global environmental sustainability. If investment in regeneration efforts is sufficiently substantial, or if the wider social and environmental values associated with the exhaustible assets are taken into account, then the safe operating space may be conserved indefinitely. Such policy challenges will become increasingly important as dominant firms exert market power over the planet’s remaining environment and resources that constitute key “safe operating spaces”, as designated by planetary boundaries.

Cost-Plus Patent Damages

This Article assesses recent proposals to use risk-adjusted costs of producing an invention as a basis for either setting patent damages or valuing patents taken by eminent domain. In theory, cost-plus damages can address one of the central challenges of patent law: ensuring that a patentee does not obtain excessive rents for an invention. But cost-plus damages have three principal problems. First, risk may be difficult to estimate, and estimates may be infected by hindsight. Second, if the permitted rate of return is too low, there may be insufficient incentives to invent. Indeed, even a rate of return that seems generous for existing companies may discourage entry into the industry. Third, inventors may spend much more on invention, anticipating that these greater expenses will not only increase the chance of success, but also increase the amount that they can charge. This Article assesses recent literature proposing cost-plus patent damages, and it offers a simulation model to assess the magnitude of these problems. It concludes that while these problems are serious, social welfare still might be increased by considering cost­plus damages as a factor in the patent damages calculus.

İstanbul İli Küçükçekmece İlçesinde Kamu Okullarındaki Kantinlerin Yapısal Özellikleri ve Sorunları

Bu araştırmanın amacı İstanbul-Küçükçekmece ilçesindeki okul kantinlerinin genel özellikleri ve sorunlarının saptanmasıdır. Araştırma verileri 2017 yılı Mayıs-Haziran döneminde 58 adet kantinciden anket yöntemi ile elde edilmiştir. Yöntem olarak frekans, yüzde dağılımlar ve ortalamalar kullanılmış ve sonuçlar yorumlanmıştır. Kantincilerin %65,52‘sinin erkek, yaş ortalamalarının 44,28 yıl ve çoğunlukla ortaokul ve lise mezunu (%29,31) oldukları belirlenirken işin çoğunlukla aile geçimini sağlamak için (%84,48) yapıldığı bulunmuştur. Kantinlerin büyük çoğunluğunda (%93,10) işçi çalıştırıldığı saptanmış olup, ortalama 1,64 adet geçici ve 1,66 adet daimî işçi çalıştırıldığı hesaplanmıştır. Kantinler çoğunlukla okul içinde (%63,79) ve zemin katta (%56,76) hizmet vermektedir. Kantinlerde ürün temini toptancıdan (%100,00), haftalık (%75,86) ve peşin (%55,17) olarak yapılmaktadır. Karşılaşılan en önemli faaliyet sorunları okul çevresindeki işletmelerin oluşturduğu haksız rekabet (%79,31), kira bedelinin yüksekliği (%70,69) ve tatil sürelerinin uzun olmasıdır (%50,00). Okullarda sağlıklı beslenme ihtiyacının karşılanması ve alışkanlığının kazanılmasında kantinlerin mevcut yapısının bilinmesi ve kantincilerin sorunlarının dikkate alınması katkı sağlayabilir.

The Dark Side of Self-Regulation

The financial services industry indirectly regulates itself through little-discussed, scandal-prone, and structurally-entrenched self-regulatory organizations. FINRA, the most prominent of these self-regulatory organizations, makes regulations and sets enforcement policy that directly affect public welfare. As with other self-regulatory organizations, FINRA’s structure poses a continual risk that industry members will subvert its processes to act like a cartel, promoting industry interests at the expense of the public and contributing to the excessive rents collected by financial intermediaries. Although this dark side to self-regulation poses a constant danger, structural reforms may increase the likelihood that FINRA and other self-regulatory organizations will take the public’s interests into account. While others have discussed how self-regulatory organizations increasingly resemble a fifth branch of the federal government, this article shifts the focus to how the public actually exercises its voice within FINRA and other self-regulatory organizations. This Article examines the purportedly public representatives serving on FINRA’s Board of Governors. It finds that these public representatives often simultaneously serve on the boards of corporate financial intermediaries, giving rise to conflicts of interest between loyalties to market participants and industry lobbying groups and their roles as protectors of the public interest. To amplify the public’s voice within these organizations, this Article proposes a different appointment process for the public representatives serving within self-regulatory organizations and calls for increased transparency and improved oversight.

Tariff revisions and the impact of variability of solar irradiation on PV policy support: The case of Italy

The solar irradiation is one the most critical parameter to ensure the overall profitability of photovoltaic (PV) projects. During the period of the European solar boom, the PVGIS-3 radiation data have been largely used by policy makers in setting remuneration levels, as well as by project developers, banks and asset managers for professional assessment of the underlying financial return of the investment. High quality and more accurate data included in the updated PVGIS-CMSAF show that solar resources in Europe have been greatly underestimated by PVGIS-3. The present paper evaluates how reported changes in solar irradiation have affected both PV projects profitability and overall costs of subsidy for final consumers. By focusing on a large sample of Italian PV plants, our findings highlight that solar irradiation levels higher than those initially assumed have caused excessive rents and windfall profits for PV project developers thus potentially harming electricity users which are indirectly bearing the burden of the renewable energy sources (RES) incentives. In regulatory contexts suffering from information asymmetries between RES producers and regulatory agencies, support tariff set by public authorities should be periodically revised according to transparent procedures, whenever significant changes in long-term solar irradiation data occur.

Ciudades en auge en Chile: Rol de la actividad exportadora en la dinámica del empleo urbano

During the beginning of the 21st century, cities in Chile have experienced a phase of rapid expansion regarding export activities. While a booming export sector may produce negative effects on other activities, there are also important impulses on urban economies, especially through the demand for “non-tradable” services, or through investment of excessive rents and the secondary circuit of capital. By contrasting booming and non-booming cities in Chile through a quantitative exercise, we identify different explanations for employment trends in three service sectors that are highly relevant for the urban economy. In booming cities there are important positive effects due to mining employment and revenues on employment in the construction and retail sectors. On the other hand, in the non-booming cities, mining loses its outstanding role, while public spending and the non-metal industry (including agricultural products processing) are more relevant to explain urban employment.

Uber Might Buy Me a Mercedes Benz: An Empirical Investigation of the Sharing Economy and Durable Goods Purchase

In this work, we examine how sharing-economy platforms affect durable goods purchase. On the one hand, the introduction of such platforms may cannibalize sales, as they may change the decision-making calculus of consumers by offering a lower cost “rental” option in lieu of purchase. On the other hand, such platforms might stimulate purchase, as their presence enhances the value of ownership by allowing participants to capture rents through the sharing economy. We examine this tension using a unique dataset of new vehicle registrations in China. In doing so, we exploit the variation in timing of Uber entry across different locations to estimate the effect on new vehicle purchase. Findings suggest Uber entry is associated with a considerable increase in new vehicle ownership, indicating that consumers are actively changing their stock of held resources in order to capture excess rents offered by these platforms. Further, results indicate that the effect of Uber entry varies considerably across vehicle type.

Network Expansion to Mitigate Market Power

Constrained transmission capacity in electricity networks may give generators the possibility to game the market by specifically causing congestion and thereby appropriating excessive rents. Investment in network capacity can ameliorate such behavior by reducing the potential for strategic behavior. However, modeling Nash equilibria between generators, which explicitly account for their impact on the network, is mathematically and computationally challenging. We propose a three-stage model to describe how network investment can reduce market power exertion: a benevolent planner decides on network upgrades for existing lines anticipating the gaming opportunities by strategic generators. These firms, in turn, anticipate their impact on market-clearing prices and grid congestion. In this respect, we provide the first model endogenizing the trade-off between the costs of grid investment and benefits from reduced market power potential in short-run market clearing. In a numerical example using a three-node network, we illustrate three distinct effects: firstly, by reducing market power exertion, network expansion can yield welfare gains beyond pure efficiency increases. Anticipating gaming possibilities when planning network expansion can push welfare close to a first-best competitive benchmark. Secondly, network upgrades entail a relative shift of rents from producers to consumers when congestion rents were excessive. Thirdly, investment may yield suboptimal or even disequilibrium outcomes when strategic behavior of certain market participants is neglected in network planning.

Evolução recente da propriedade domiciliar no Brasil

The issue of private property and its correlation with the expansion of modernity, with the affirmation of industrial capitalism, and with the consecration of laws and fundamental clauses is age-old and permeates the philosophical approaches from Plato and Aristotle to Morus, Hobbes, and Locke, reaching even authors from the Age of Enlightenment such as Rousseau and Voltaire, among others. The debate over private property is, therefore, a recurring subject that still captures the attention of many research scholars. In Brazil, given the historical record of the dispossessed, the late abolition of slavery (1888), and the sheer size of the country, it is a given fact that owning a household has always been the dream of millions of families. Even today, millions of precarious households shape the physiognomy of Brazilian cities. Nevertheless, recent census data have lead to the conclusion that changes in this scenario have occurred.In urban Brazil, the growth rate of “owned” and “unowned” households has been greater than demographic growth, especially in the North, Midwest, and Northeast regions of the country. The “unowned” / “owned” proportion has risen in all Sates of the Federal Union, and in many cases, this increase has been remarkable, in excess of 40%. The three regions where the growth rate of “owned” households proved to be higher (North, Northeast, and Midwest) also stand out among those that show the most noticeable increase in the ratio between “owned” and “unowned” households. The results also indicate a strong expansion of “unowned” and rented households in the country. The annual growth reached 3.79% from 2000 to 2010, significantly higher than the growth of the resident population in Brazil, and all states showed positive growth rates. The proportion of “owned” households by city, as compared to the average of “owned” households in Brazil, clearly shows that, in the vast majority of Brazilian cities, the percentage of “owned” households was high in both 2000 and 2010. As regards “unowned” households, it is important to highlight the amount of households managed as real estate for rent. The expansion of this type of real estate may well relativize the supposed advantages of the expansion of household real estate. What should also be noted is the increase in the proportion of rented urban households over this period in all States of the Federal Union. The most significant increases occurred in the North (8.2%), Northeast (6.2%), and Midwest (6.0%) regions of the country. To note, all the states in the North, Midwest, and Northeast regions (except for Ceará), and the states of Espírito Santo and Santa Catarina, are above the mean national growth rate (4.7%). Thus, it can be inferred that where there is an accelerated expansion of “owned” real estate, there is also a simultaneous acceleration of the supply of real estate for rent.A decline in households deemed inappropriate is also evident. There are data indicating that until 2000, at least 80.7% of one-bedroom households were located in urban areas. In 2010, a sharp decline of 10 per cent points (67.2%) could be observed in this proportion, demonstrating that precarious housing still remains and is high in rural areas: 169,450 one-bedroom households in 2000 and 183,881 in 2010. In relative terms, these figures account for 32.6% of the total number of rural households in 2000 and 43.8% in 2010. Also important is that in urban Brazil, approximately 22% of households rented in 2010 were in fact occupied; this is due primarily to excessive rental prices, i.e. households in which low-income families spend more than 30% of their income. Even more relevant is that in the five major regions, this proportion is approximately 20%. The southeast, where the number of activities that produce jobs is much greater and the presence of “owned” and “unowned” households is larger, is also the area where excessive rents are more significant, directly influencing the Brazilian average: many families with an income of up to three minimum wages pay excessive rents (23.7%).The data available indicate that private property in Brazil expanded markedly in the early twenty-first century. One-bedroom residential real estate experienced a sharp decline in urban areas, while the supply of “unowned” real estate for rent rose in all states. In general, “owned” and “unowned” households have become more “appropriate”, especially in the southeast, although nearly 22% of households were rented at excessively high prices in 2010.

Financialization and the Political Economy of Corporations

The political economy of corporations is key to economic outcomes and social welfare in our global economy. Those who control corporations and government institutions often collude to benefit themselves at the expense of others while distorting the economy and deceiving the public. Governments can set and enforce rules to correct market failures and address negative externalities, yet even in well-functioning democracies, they tolerate and sometimes promote excessive rent extraction and fraud by corporations. Political bargains between policymakers and financial institutions are particularly pervasive and contribute to the distortions and inefficiencies associated with financialization and failed corporate governance. Many economic analyses assume that markets are competitive and free of fraud and that corporations serve society by maximizing “shareholder value.” Political economy realities, however, often make these assumptions false. Economists must help hold governments accountable by recognizing these realities and exposing situations where policies based on inappropriate assumptions distort markets and cause harm.

Cream‐Skimming in Financial Markets

ABSTRACTWe propose a model in which investors may choose to acquire costly information that identifies good assets and purchase these assets in opaque (OTC) markets. Uninformed investors access an asset pool that has been cream‐skimmed by informed investors. When the quality composition of assets for sale is fixed, there is too much information acquisition and the financial industry extracts excessive rents. In the presence of moral hazard in origination, the social value of information varies inversely with information acquisition. Low quality origination is associated with large rents in the financial sector. Equilibrium acquisition of information is generically inefficient.

The Sisyphean Economy

A geonomic remedy for a capital-based economy is introduced; the unproductive role of excessive rent extraction via modern monetary tools is explained. The intricate interplay of assets, liquidity, productivity and the living body economic of humanity is examined in depth. Before the actual paper starts, the origin and nature of capitalism is clarified in five introductory points to serve as primer for the discussion of the economic remedy; three gateways of gradual reform are identified as vital for future economic growth.

The Politics of Chinese Land: Partial Reform, Vested Interests and Small Property

This paper investigates the evolution of the Chinese land regime in the past three decades and focus on one question: why has the land use reform succeeded in the urban area, but not in the rural area? Through asking this question, it presents a holistic view of Chinese land reform, rather than the conventional “rural land rights conflict” picture. This paper argues that the so-called rural land problem is the consequence of China’s partial land use reform. In 1988, the Chinese government chose to conduct land use reform sequentially: first urban and then rural. It was a pragmatic move because it would provoke much less resistance. It also made local governments in China the biggest beneficiary and supporter of the partial reform. However, a beneficiary of partial reform does not necessarily support further reform because of the excessive rents available between the market of urban real estate and the government-controlled system of rural land development and transfer. On the other hand, Chinese farmers and other relevant groups have no voice or power in the political process of the reform, which makes it difficult for the central government to achieve an agenda that balances the interests of all relevant parties. Nevertheless, Chinese farmers have challenged the existing system by forming a huge small-property market to claim their interests in rural land, which counteracts the goals of the central and local governments and has led to adaptive policy changes. This case study of Chinese land reform provides a richer account of the political process of evolution of property rights.

Environmental Migration from Coastal Area to Urban Centers: A Case Study of Mohammadpur Slums, Dhaka, Bangladesh

Migration due to climate change induced disasters has become one of the major challenges for Bangladesh. But the data related to environmental migrants are insufficient specially the aftermath of migration to a new area. This study was designed to assess the people’s perceptions on coastal environmental hazards and the status of migrants after migration. The study was conducted on 100 households living in four slums of Mohammadpur area in Dhaka city with the help of questionnaire survey. 78% of the total respondents believe that coastal zone is more vulnerable than 10 years ago. 31.11% respondents thought frequent cyclone and 28.51% thought climate change as the major factors making the coastal zone more vulnerable over last 10 years. Excessive house rent (14.38%), inadequate supply of gas and electricity (14.22%) and water scarcity (13.08%) are the main problems of the slum people to where they have migrated. 33.64% respondents thought that governmental and non-governmental bodies should take initiatives to mitigate their problems.100% of the respondents chose Dhaka for the employment facility. Most of the respondents were from western coastal zone of Bangladesh. 61% of the respondents migrated during 2001-2010 showing a close relationship between increasing disaster and increase in the number of environmental migrants.

Agency Conflict and Bank Interest Spreads in Ghana

This study examines the relationship between interest rate spreads in the Ghanaian banking industry and variables that reflect convergence/divergence between managerial goals and corporate goals of which the key variables are executive compensation and bank ownership structure. Using data covering the period 1999–2011, this study employs a panel regression to examine how agency factors affect interest rate spreads in Ghana. The results of the study indicate that executive compensation is associated with higher net interest margins, suggesting that managers operate on higher margins since they can extract excess rents. The findings of the study also show that asset size, the level of concentration in the banking industry, the level of capital held by banks, the reserve requirement, and the level of inflation all positively contribute to the observed high interest spreads. Our results are robust to the control of several bank-specific, industry-specific, regulatory and macroeconomic factors.

The Power of the Street: Evidence from Egypt's Arab Spring

During Egypt's Arab Spring, unprecedented popular mobilization and protests brought down Hosni Mubarak's government and ushered in an era of competition between three groups: elites associated with Mubarak's National Democratic Party (NDP), the military, and the Islamist Muslim Brotherhood. Street protests continued to play an important role during this power struggle. We show that these protests are associated with differential stock market returns for firms connected to the three groups. Using daily variation in the number of protesters, we document that more intense protests in Tahrir Square are associated with lower stock market valuations for firms connected to the group currently in power relative to non-connected firms, but have no impact on the relative valuations of firms connected to other powerful groups. We further show that activity on social media may have played an important role in mobilizing protesters, but had no direct effect on relative valuations. According to our preferred interpretation, these events provide evidence that, under weak institutions, popular mobilization and protests have a role in restricting the ability of connected firms to capture excess rents.

The legal framework for developing cogeneration projects in Spain

In recent years cogeneration in Spain has flourished. However, new legislation will have a significant impact on the future development of such projects. This paper offers an analysis of recent experience and looks at the effect of the new legal framework. It concludes that the excessive economic rents previously available in the industry had to be curbed, but that there is a need to ensure that cogenerators are able to compete effectively in the new environment. Industry players should be compensated for higher efficiency requirements, given access to lower fuel prices and be able to share project risk with the power purchaser and the fuel supplier. Otherwise a situation will develop where unacceptable risks are imposed on the heat host.