Economic Rent Theory

Economic rent theory refers to the earnings received by a resource—such as land, labor, or capital—that exceed what is necessary to keep that resource in its current use. It arises due to scarcity or unique advantages, making the resource more valuable than its less productive counterparts. For example, a piece of land with rare, desirable features may command higher rent because of its scarcity, not because of additional effort or investment. Essentially, economic rent captures the extra income earned because of a resource’s special qualities or limited availability, rather than from ongoing productivity.