<p>I do not think you have the correct definition of rent there. Or to be more clear maybe that is the definition used in some subfields of economics as language can sometimes differ between subfields. Also what you have there seems to be closer to definition of quasi-rent. Generally the definition of economic rent that you will find in textbooks is the same that is given by <a href="https://stats.oecd.org/glossary/detail.asp?ID=3296" rel="nofollow noreferrer">OECD</a>:</p>
<blockquote>
<p>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.</p>
</blockquote>
<p>So the first difference between rent and economic profit is that rent is the return on factors of production that are supplied to the market. Goods and services intended for final consumption are not factors of production.</p>
<p>The second difference is that goods and services are not fixed in supply. Even a monopolist that enjoys economic profit thus does not <em>necessarily</em> earn rents because the production quantity of monopoly is not fixed and it will respond to changes in revenues.</p>
<p>However, in some cases rents and quasi-rents can be equal to economic profit. Again following the OECD explanation:</p>
<blockquote>
<p>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.</p>
</blockquote>
<blockquote>
<p>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.</p>
</blockquote>

CC BY-SA 4.0
2022-12-01T20:45:25.967Z
Thank you for your answer. Does anyone else have anything?
Mark Morales II
CC BY-SA 4.0
2024-05-07T10:43:59.410Z
When you say "goods and services intended for final consumption are not factors of production.", why is that an argument for why economic profit is different from rent? Profits vs goods and services intended for final consumption are different things right? Also when you say rent is the return on factors of production that are supplied to the market? Are factors of production supplied to the market? And which factors? Land, labour or capital?
Victor Nielsen
CC BY-SA 4.0
2024-05-07T10:50:37.120Z
The link you have provided to the OECD is not linking to the citation. Also a more common definition is "In neoclassical economics, economic rent is any payment to the owner of a factor of production in excess of the cost needed to bring that factor into production". 
https://en.wikipedia.org/wiki/Economic_rent
Victor Nielsen
CC BY-SA 4.0
2024-05-07T10:55:58.390Z
1. I do not say that, that’s a commonly accepted definition in the profession. It is relevant in the context of OP question. 2. Again I do not say that OECD does and again it’s accepted definition. Also it’s not return to every factor of production only to one that is fixed in supply. You can use any number of factors of production you want. Land labor and capital are the classic ones but modern literature also distinguishes human capital, entrepreneurship etc. However, not every labor, land or capital etc will be fixed in supply.
1muflon1
CC BY-SA 4.0
2024-05-07T10:58:08.200Z
3. The link did refer to the citation. If you click on it you will get now yellow warning that the original link changed because they depreciated the original site. Unfortunately, when sites get updated links often break. This is why on E:SE link only answers are not allowed. Try to find the website on way back machine
1muflon1
CC BY-SA 4.0
2024-05-07T10:59:51.150Z
@VictorNielsen 4. That Wikipedia page refers to some website that’s clearly not academic. Moreover, that Wikipedia page is clearly editorialized since the source doesn’t even make the claims that Wikipedia page does.
1muflon1
CC BY-SA 4.0
2024-05-07T11:20:39.620Z
But you say that the definition is not the one used by the profession. One example is one of my microeconomics text books which cites David Ricardo (the one who came up with the term "economic rent"): "The rent of land is determined by the excess of its produce over that which the same application can secure from the least productive land in use". Can you maybe provide another source that represents the general stance of the profession? I'm only asking because it is relevant for my PhD.
Victor Nielsen
CC BY-SA 4.0
2024-05-07T11:36:21.447Z
@VictorNielsen yes, for example here is the definition from the New Palgrave Dictionary of Economics, which is the premier academic source for economics definitions: "‘Economic rent’ is payment for use of any resource whose supply is fixed." here is the link (https://link.springer.com/referenceworkentry/10.1057/978-1-349-95121-5_1738-2). 1. Ricardo lived centuries ago economic terminology changed. 2. Even in my post I made clear that in some subfields of economics terminology might be not consistently applied. If you do PhD you should apply definition in your subfield, not wikipedia or even
1muflon1
CC BY-SA 4.0
2024-05-07T11:37:36.167Z
definition more generally used. For example, in general economics capital does not include money but in subfield of financial economics it can. If you do research in subfield  of financial economics you can deviate from most common definition and use the definition used in that particular subfield.
1muflon1
CC BY-SA 4.0
2024-05-07T12:55:18.797Z
Thanks for sharing! 
In the link you sent, monopoly rent implies artificially restricted supply. In the section further down, it is explained why in the short run, it is still fixed supply if units of these in the long run can be altered. Wouldn't this imply more of a similarity between profits and economic rent?
Victor Nielsen
CC BY-SA 4.0
2024-05-07T13:12:45.883Z
@VictorNielsen 1. no in the way OP suggests. There can't really be similarity here because they are different concepts.  Profits, but also worker's wages, or (non-economic) rents or interest rate can sometimes be considered econ rent depending on whether supply fixed or not. That does not mean there is similarity or equivalence. Let me give you an analogy. We distinguish between single, proprietorship, private corporations, public corporations. We also distinguish between perfect competition, monopolistic comp., oligopoly, monopoly. Just because I show few examples of public corporations being
1muflon1
CC BY-SA 4.0
2024-05-07T13:14:24.277Z
monopolies, that does not mean there is equivalence or similarity between monopoly and public corporation. Those are two different levels of analysis (one is analyzing legal form, another is analyzing market structure). Legal form is not similar to market structure, the same way as source of income is not similar to economic rent determination. They are two different conceptual frameworks that can be applied to classify income. PS: Exactly the same as above would apply even if you use the alternative definition of rent about extra pay above what needs to bring factor to market.
1muflon1
CC BY-SA 4.0
2024-05-07T13:22:11.070Z
@VictorNielsen 2. What you are referring to (e.g. supply fixed in short run), is not true economic rent, but quasi rent. https://link.springer.com/referenceworkentry/10.1057/978-1-349-95121-5_1738-2#Sec3
1muflon1
CC BY-SA 4.0
2024-05-08T16:48:19.763Z
@1muflon1 I see. Wouldn't you say that  it's possible for a company to have positive economic rent and no profits if for example they own scarce assets with appreciate in value, but their business activities are going so poorly that they still do not make a profit? In that sense profits are treated as revenues over costs and economic rent is one of many revenue sources, and a particular one that arises from the ownership of scarce resources?
Victor Nielsen
CC BY-SA 4.0
2024-05-08T23:38:59.530Z
@VictorNielsen yes except some things you added at the end; rent does not arise from scarcity. Perfectly elasticity supply does not mean there is no scarcity. You are confusing scarcity per se with supply being inelastic due to not being able to produce more of something. Thats not def of scarcity in econ.
1muflon1
CC BY-SA 4.0
2024-05-10T07:58:30.453Z
good point, I will be more careful with the use of the word.
Victor Nielsen
CC BY-SA 4.0
2022-12-01T08:59:12.157Z
2022-12-03T10:42:06.170Z
2022-12-03T10:42:06.170Z
1muflon1
<p>The cost of production referenced in the definition of economic rent is the opportunity cost, which is the value of the next best alternative use of the resources used in production. This is different from the accounting cost, which is the actual cost incurred in the production process.</p>
<p>Economic rent is the excess of the revenue from the sale of a product over the opportunity cost of the resources used to produce it. In other words, it is the profit that remains after accounting for the opportunity cost of the resources used in production. This is different from accounting profit, which is the excess of revenue over the actual cost incurred in the production process.</p>
<p>It is possible for economic rent to exist in a market without economic profit, or vice versa. Economic rent is the excess of the revenue from the sale of a specific product over the opportunity cost of the resources used to produce it. Economic profit, on the other hand, is the excess of total revenue over the total opportunity cost of all the resources used in the production process.</p>

CC BY-SA 4.0
2022-12-08T14:06:20.760Z
2022-12-08T14:06:20.760Z
Pegasus
<p>I actually think your definitions are correct. The difference in my eyes is that it's possible to earn economic rent while still operating at a loss. Let's say that the company has multiple rent generating assets like patents or land, but at the same time they are unproductive in their production. They may have positive economic rent, but still have a negative profit. Profit is thus the overall bottom line of a company, while economic rent is a revenue source that doesn't come from production costs.</p>
<p>If you read <a href="https://business.columbia.edu/sites/default/files-efs/imce-uploads/Joseph_Stiglitz/NewTheoreticalPerspectivesontheDistributionofIncomeandWealthAmongIndividuals_0.pdf" rel="nofollow noreferrer">https://business.columbia.edu/sites/default/files-efs/imce-uploads/Joseph_Stiglitz/NewTheoreticalPerspectivesontheDistributionofIncomeandWealthAmongIndividuals_0.pdf</a> you will see that Stiglitz argues that the rise in inequality and stagnation of growth is explained exactly by how companies and individuals are gaining wealth through ownership of these types of assets without actually improving productive capabilities.</p>

CC BY-SA 4.0
2024-05-07T10:37:22.090Z
I am curious about the downvotes. I have been researching economic rent for the past half year, so I want to understand what I have missed.
Victor Nielsen
CC BY-SA 4.0
2024-04-25T16:58:35.397Z
2024-04-25T16:58:35.397Z
Victor Nielsen
<p>I've been having a hard time understanding the distinction between economic rent and economic profit. As far as I understand it, the terms mean as follows:</p>
<ol>
<li><p>Economic rent is any revenue received by the owner of a factor of production (as a result of its use) in excess of the cost of bringing that factor into production. It can arise from the ownership of land and natural resources, the ownership of intellectual property such as patents and copyrights, or a market being in a state of imperfect competition wherein one or more economic entities have some level of market power and can act as price-setters instead of price-takers.</p>
</li>
<li><p>Economic profit is the difference between the revenue that an economic entity has received from its outputs and the economic cost of its inputs. The economic cost includes both explicit and implicit costs. An economic profit of zero (also known as a state of &quot;normal profit&quot;) is the minimum profit level that a company needs to achieve in order to justify its continued operation. In a perfectly competitive market that has reached long-run economic equilibrium, no one makes any economic profit, and there is no incentive for companies to enter or leave the industry.</p>
</li>
</ol>
<p>What is the difference between these two concepts? Under this broader question, I have two sub-questions:</p>
<ol>
<li><p>Is the cost of production referenced in the definition of economic rent the accounting cost or the economic cost? In other words, does it include implicit costs? If it's the accounting cost, then what makes economic rent different from accounting profit? If it's the economic cost, then what makes economic rent different from economic profit?</p>
</li>
<li><p>Can economic rent exist in a market without economic profit or vice versa?</p>
</li>
</ol>
<p>Thank you for any answers that you can provide.</p>

<efficient-markets><market-failure><rent>
What is the difference between economic rent and economic profit?
Mark Morales II
# What is the difference between economic rent and economic profit?

(Asked by: username_0 on 2022-12-01)

I've been having a hard time understanding the distinction between economic rent and economic profit. As far as I understand it, the terms mean as follows:

1. Economic rent is any revenue received by the owner of a factor of production (as a result of its use) in excess of the cost of bringing that factor into production. It can arise from the ownership of land and natural resources, the ownership of intellectual property such as patents and copyrights, or a market being in a state of imperfect competition wherein one or more economic entities have some level of market power and can act as price-setters instead of price-takers.
2. Economic profit is the difference between the revenue that an economic entity has received from its outputs and the economic cost of its inputs. The economic cost includes both explicit and implicit costs. An economic profit of zero (also known as a state of "normal profit") is the minimum profit level that a company needs to achieve in order to justify its continued operation. In a perfectly competitive market that has reached long-run economic equilibrium, no one makes any economic profit, and there is no incentive for companies to enter or leave the industry.

What is the difference between these two concepts? Under this broader question, I have two sub-questions:

1. Is the cost of production referenced in the definition of economic rent the accounting cost or the economic cost? In other words, does it include implicit costs? If it's the accounting cost, then what makes economic rent different from accounting profit? If it's the economic cost, then what makes economic rent different from economic profit?
2. Can economic rent exist in a market without economic profit or vice versa?

Thank you for any answers that you can provide.

**Tags:** efficient-markets, market-failure, rent


---

## 3 answers

### Answer by username_1 on 2022-12-01. Score: 2

I do not think you have the correct definition of rent there. Or to be more clear maybe that is the definition used in some subfields of economics as language can sometimes differ between subfields. Also what you have there seems to be closer to definition of quasi-rent. Generally the definition of economic rent that you will find in textbooks is the same that is given by [OECD](https://stats.oecd.org/glossary/detail.asp?ID=3296):

> 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.

So the first difference between rent and economic profit is that rent is the return on factors of production that are supplied to the market. Goods and services intended for final consumption are not factors of production.

The second difference is that goods and services are not fixed in supply. Even a monopolist that enjoys economic profit thus does not *necessarily* earn rents because the production quantity of monopoly is not fixed and it will respond to changes in revenues.

However, in some cases rents and quasi-rents can be equal to economic profit. Again following the OECD explanation:

> 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.

> **Comments:**
> **username_0**: Thank you for your answer. Does anyone else have anything?  
> **username_2**: When you say "goods and services intended for final consumption are not factors of production.", why is that an argument for why economic profit is different from rent? Profits vs goods and services intended for final consumption are different things right? Also when you say rent is the return on factors of production that are supplied to the market? Are factors of production supplied to the market? And which factors? Land, labour or capital?  
> **username_2**: The link you have provided to the OECD is not linking to the citation. Also a more common definition is "In neoclassical economics, economic rent is any payment to the owner of a factor of production in excess of the cost needed to bring that factor into production".  https://en.wikipedia.org/wiki/Economic_rent  
> **username_1**: 1. I do not say that, that’s a commonly accepted definition in the profession. It is relevant in the context of OP question. 2. Again I do not say that OECD does and again it’s accepted definition. Also it’s not return to every factor of production only to one that is fixed in supply. You can use any number of factors of production you want. Land labor and capital are the classic ones but modern literature also distinguishes human capital, entrepreneurship etc. However, not every labor, land or capital etc will be fixed in supply.  
> **username_1**: 3. The link did refer to the citation. If you click on it you will get now yellow warning that the original link changed because they depreciated the original site. Unfortunately, when sites get updated links often break. This is why on E:SE link only answers are not allowed. Try to find the website on way back machine  
> **username_1**: @username_2 4. That Wikipedia page refers to some website that’s clearly not academic. Moreover, that Wikipedia page is clearly editorialized since the source doesn’t even make the claims that Wikipedia page does.  
> **username_2**: But you say that the definition is not the one used by the profession. One example is one of my microeconomics text books which cites David Ricardo (the one who came up with the term "economic rent"): "The rent of land is determined by the excess of its produce over that which the same application can secure from the least productive land in use". Can you maybe provide another source that represents the general stance of the profession? I'm only asking because it is relevant for my PhD.  
> **username_1**: @username_2 yes, for example here is the definition from the New Palgrave Dictionary of Economics, which is the premier academic source for economics definitions: "‘Economic rent’ is payment for use of any resource whose supply is fixed." here is the link (https://link.springer.com/referenceworkentry/10.1057/978-1-349-95121-5_1738-2). 1. Ricardo lived centuries ago economic terminology changed. 2. Even in my post I made clear that in some subfields of economics terminology might be not consistently applied. If you do PhD you should apply definition in your subfield, not wikipedia or even  
> **username_1**: definition more generally used. For example, in general economics capital does not include money but in subfield of financial economics it can. If you do research in subfield  of financial economics you can deviate from most common definition and use the definition used in that particular subfield.  
> **username_2**: Thanks for sharing!  In the link you sent, monopoly rent implies artificially restricted supply. In the section further down, it is explained why in the short run, it is still fixed supply if units of these in the long run can be altered. Wouldn't this imply more of a similarity between profits and economic rent?  
> **username_1**: @username_2 1. no in the way OP suggests. There can't really be similarity here because they are different concepts.  Profits, but also worker's wages, or (non-economic) rents or interest rate can sometimes be considered econ rent depending on whether supply fixed or not. That does not mean there is similarity or equivalence. Let me give you an analogy. We distinguish between single, proprietorship, private corporations, public corporations. We also distinguish between perfect competition, monopolistic comp., oligopoly, monopoly. Just because I show few examples of public corporations being  
> **username_1**: monopolies, that does not mean there is equivalence or similarity between monopoly and public corporation. Those are two different levels of analysis (one is analyzing legal form, another is analyzing market structure). Legal form is not similar to market structure, the same way as source of income is not similar to economic rent determination. They are two different conceptual frameworks that can be applied to classify income. PS: Exactly the same as above would apply even if you use the alternative definition of rent about extra pay above what needs to bring factor to market.  
> **username_1**: @username_2 2. What you are referring to (e.g. supply fixed in short run), is not true economic rent, but quasi rent. https://link.springer.com/referenceworkentry/10.1057/978-1-349-95121-5_1738-2#Sec3  
> **username_2**: @username_1 I see. Wouldn't you say that  it's possible for a company to have positive economic rent and no profits if for example they own scarce assets with appreciate in value, but their business activities are going so poorly that they still do not make a profit? In that sense profits are treated as revenues over costs and economic rent is one of many revenue sources, and a particular one that arises from the ownership of scarce resources?  
> **username_1**: @username_2 yes except some things you added at the end; rent does not arise from scarcity. Perfectly elasticity supply does not mean there is no scarcity. You are confusing scarcity per se with supply being inelastic due to not being able to produce more of something. Thats not def of scarcity in econ.  
> **username_2**: good point, I will be more careful with the use of the word.  

---

### Answer by username_3 on 2022-12-08. Score: 0

The cost of production referenced in the definition of economic rent is the opportunity cost, which is the value of the next best alternative use of the resources used in production. This is different from the accounting cost, which is the actual cost incurred in the production process.

Economic rent is the excess of the revenue from the sale of a product over the opportunity cost of the resources used to produce it. In other words, it is the profit that remains after accounting for the opportunity cost of the resources used in production. This is different from accounting profit, which is the excess of revenue over the actual cost incurred in the production process.

It is possible for economic rent to exist in a market without economic profit, or vice versa. Economic rent is the excess of the revenue from the sale of a specific product over the opportunity cost of the resources used to produce it. Economic profit, on the other hand, is the excess of total revenue over the total opportunity cost of all the resources used in the production process.


---

### Answer by username_2 on 2024-04-25. Score: -2

I actually think your definitions are correct. The difference in my eyes is that it's possible to earn economic rent while still operating at a loss. Let's say that the company has multiple rent generating assets like patents or land, but at the same time they are unproductive in their production. They may have positive economic rent, but still have a negative profit. Profit is thus the overall bottom line of a company, while economic rent is a revenue source that doesn't come from production costs.

If you read <https://business.columbia.edu/sites/default/files-efs/imce-uploads/Joseph_Stiglitz/NewTheoreticalPerspectivesontheDistributionofIncomeandWealthAmongIndividuals_0.pdf> you will see that Stiglitz argues that the rise in inequality and stagnation of growth is explained exactly by how companies and individuals are gaining wealth through ownership of these types of assets without actually improving productive capabilities.

> **Comments:**
> **username_2**: I am curious about the downvotes. I have been researching economic rent for the past half year, so I want to understand what I have missed.  

---

