A must read for students of economics and finance [
Prof. Mullainathan notes:
“People in some
professions provide a surplus of social returns. Inventors are a good example.
Take the modern semiconductor. It made possible countless other inventions — nearly
every piece of computing we interact with today.
But the winners of
the 1956 Nobel Prize in Physics, John Bardeen, Walter H. Brattain and William
B. Shockley, who have been widely credited with inventing the semiconductor,
did not receive even a fraction of the wealth that their invention would help
create. Patents rarely cover an invention’s numerous downstream benefits
because knowledge is a public good and builds on itself. Just as the
semiconductor spawned innovation, Bardeen, Shockley and Brattain themselves
relied on countless other insights and inventions
…
But not everyone
contributes in this way. In an influential paper, the economists Kevin M.
Murphy and Robert W. Vishny, both at the University of Chicago Booth School of
Business, and Andrei Shleifer at Harvard University argue that countries suffer
when talented people become what we economists call “rent seekers.” Instead of
creating wealth, rent seekers simply transfer it — from others to themselves.
Job titles don’t
tell you whether someone is primarily a rent seeker. A lawyer who helps draft
precise contracts may actually be helping the wheels of commerce turn, and so
creating wealth. But trial lawyers in a country with poorly functioning tort
systems may simply be extracting rents: They can make money by pursuing
frivolous lawsuits.”