The hidden rent-seeking capacity of corporations

Abstract

Purpose – The purpose of this paper is to develop the hypothesis that corporations are a particularly suitable instrument for rent seeking. Benefits are reaped by powerful companies, whereas a great deal of the costs is passed on to weakly organized groups. Design/methodology/approach – The paper develops and substantiates the hypothesis theoretically and gives some indications. Moreover, a case study is added which refers to the German electricity market. Findings – Equity seems to be indispensable to get access to land and other assets with similar characteristics as land. At the same time, profits appear to reflect the rent-earning capacity of the company's assets. High land rents stimulate investment intensity, and corporations can collect the necessary funds. The flip-side of rents is often the externalization of costs. Also, due to their limited liability, corporations externalize risks. Originality/value – The paper provides a rationale for the common criticism of corporations, which is based on the reflection of equity as the key to land (in a broad sense) and (land) rents as the core of profits. If the findings hold true, corporations should be subject to particular regulatory observation. In particular, the corporate constitution of corporations and the taxation framework should try to get a better coupling of benefits and costs.