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In modern economics, rent refers to the earnings of factors of production (land, labour, capital) which are fixed in supply. Thus, raising the price of such factors will not cause an increase in availability but will increase the return to the factor. This differs from the more common usage of the term, whereby rent refers to payments for the use of a resource.

Economists use the term economic rent to denote the payment to factors which are permanently in fixed supply and quasi-rent to denote payments for factors which are temporarily in fixed supply. The presence of economic rents implies that the factor can neither be destroyed nor augmented. Quasi-rents exist when factors can be augmented over time, or when their supply can be reduced over time through depreciation. Factors which earn economic or quasi-rents typically are paid an amount in excess of their opportunity costs.

In the case of economic rents the supplier receives a payment in excess of the amount required to induce the supplier to supply the factor. Quasi-rents, on the other hand, are returns in excess of that required to keep the factor active, but may not be sufficient to have induced the supplier to enter in the first place. When the availability of a good is artificially restricted (for example by laws limiting entry), then the increased earnings of the remaining suppliers are termed monopoly rents. The potential existence of monopoly rents provides an incentive for firms to pay for the right to earn these rents.

Source Publication:
Glossary of Industrial Organisation Economics and Competition Law, compiled by R. S. Khemani and D. M. Shapiro, commissioned by the Directorate for Financial, Fiscal and Enterprise Affairs, OECD, 1993.

Cross References:
Rent - SNA
Rent - UN
Rent (household)


Version Indicator: OECD

Statistical Theme: Financial statistics

Created on Thursday, January 03, 2002

Last updated on Sunday, March 17, 2002