Rent as a Measure of Welfare Change

The definitions of economic rent in current use fall easily into two categories: (1) a payment in excess of that necessary to maintain a resource in its current occupation. Thus, Frederick Benham ¹ tells us that rents are ‘the sums paid to the factors which need not be paid in order to retain the factors in the industry’. While to Kenneth Boulding ² it is the payment to a factor ‘in excess of the minimum amount necessary to keep that factor in its present occupation’. The second category (2) is the difference between the current earnings of a resource and its transfer earnings ³ – the latter term signifying its earnings in the next best alternative use ⁴ . For instance, Paul Samuelson ⁵ says, ‘we should term the excess of his income above the alternative wage he could earn elsewhere as a pure rent’. Similarly, for George Stigler ⁶ the rent of a factor is ‘the excess of its return in the best use over its possible return in other uses’. ⁷