Science of Economics, chapt 3. Land and rent Science of Economics, chapt 3.

Rent Land: natural resources. Natural: apart from human action. Land rent: payment for the use of land. Economic rent: payment beyond what is needed to put a factor to its most productive use. All land rent is economic rent. Economic rents include subsidies.

Rent “Rent seeking” means obtaining privileges and subsidies from government. Also called “transfer seeking.” Rent can be implicit. Economic land rent: regardless of the explicit financial payments.

Price of Land The market price of land equals the present value of the expected future net rents, net meaning after taxes. Rent = interest rate times price of land. p = r / i A tax on land is also paid from rent: r = t*p + i*p = p ( i+t )

Effect of a tax on land value p = r / (i+t) If the interest rate or the tax rate rises, the price of land falls. The tax does not affect the rent. After transition, landowner has no burden.

The non-producer surplus Land rent is a surplus after paying for labor and capital goods. Most of the “producer” surplus is rent.

Sprawl Governments create urban sprawl by subsidizing the fringes and penalizing infilling at the urban center.