Economic Rent

Economic rent is technical terminology used by economists to define one aspect of the price of goods and services. Generally, it designates the difference between the raw costs of everything needed to produce the goods or service and the price. In the analysis, economic rent is determined for each of the factors of production that are used to produce the good or service. Usually economic rent is due to some exclusivity. For example, for labor, it could be due to celebrity or skill (e.g. higher pay for skilled workers, in a region where there is a scarcity of such skilled workers); for a good, it may be due to the power of a patent; for real estate, it may be due to a favorable location. By contrast, if there is no exclusivity and there is perfect competition, there are no economic rents, as competition drives prices down to their floor. A recipient of economic rent is a rentier.

Economic rent is different from other unearned and passive income, including contract rent. This distinction has important implications for public revenue and tax policy. As long as there is sufficient accounting profit, governments can collect a portion of economic rent for the purpose of public finance with minimal adverse effect on production or consumption. For example, economic rent can be collected by a government as royalties or extraction fees in the case of resources such as minerals and oil and gas.