chapter  7
28 Pages

Powering rent seeking in the electricity industry

ByTUN-JEN CHENG AND CHUNG-MIN TSAI

Rent seeking is the pursuit of preferential treatment (such as monopolistic or oligopolistic rights) and thereby higher level of profits or proceeds than would otherwise be available under market competition. Rent is generated if supply is artificially restrained while demand stays strong, hence consumers are forced or willing to pay a premium to purchase a product. Companies given exclusive rights to manufacture or market a product are engaged in rent seeking if they have spent their resource to lobby or even corrupt the government so as to obtain and maintain their secured market. Rent seeking is generally conceived as a socially wasteful and unproductive behavior.1 However, if astutely crafted, rent may be used to induce entrepreneurship.2 Business tycoons that led the South Korean charge into world markets were indeed rent seekers to begin with.3 Yet, rent seekers may not turn into entrepreneurs; as the Philippines under Marcos vividly demonstrated, rent seekers often abused their privileges, plundering the market without developing their nation’s industrial capacity (they remained infants that never grew up). Bad rent seeking is often more prevalent than good rent seeking. Moreover, rent seeking can be easily intermeshed with corruption, where public authority is used for personal gains through embezzlement, bribery, kickback, and so on. This chapter does not intend to make a case for or against rent seeking. Instead, its modest goal is to examine the nature and identify the locale, scopes, and types of rent seeking in China’s electricity industry.