55-763: Kendall Day Garff (July 18, 1906 – March 14, 1997) was an American businessman who owned several automobile dealerships along the Wasatch Front in Utah . Garff was born in Draper , Utah. He was a member of the Church of Jesus Christ of Latter-day Saints (LDS Church), for which he served as a missionary in Great Britain and Northern Ireland from 1926 to 1928. He graduated from the University of Utah with
110-856: A BA in Social and Behavioral Science in 1932. Garff married Marjorie Heiner in 1932 in the Salt Lake Temple and they had three children. Marjorie was ill for many years and died in 1976. Garff remarried Betty June Morgan in 1977. Before selling cars, Garff worked as a Shell service station attendant in Salt Lake City , Utah. After an explosion, the station closed for reconstruction and Garff began selling used cars to support himself and founded his company in 1932. He would buy cars in Chicago and bring them back to sell in Salt Lake. In
165-491: A coercive monopoly can result in advantages for rent-seekers in a market while imposing disadvantages on their uncorrupt competitors. This is one of many possible forms of rent-seeking behavior. The term rent, in the narrow sense of economic rent , was coined by the British 19th-century economist David Ricardo , but rent-seeking only became the subject of durable interest among economists and political scientists more than
220-763: A $ 500,000 chair at the University of Utah's Graduate College of Business, which later named a wing of its facilities the Kendall D. Garff Building in his honor. Garff received various honors for his accomplishments and activities. The University of Utah awarded him the School of Business Outstanding Achievement Award in 1961, the Emeritus Award in 1972, the Distinguished Alumnus Award in 1979, and an Honorary Doctor of Laws Degree in 1989. He
275-461: A century later after the publication of two influential papers on the topic by Gordon Tullock in 1967, and Anne Krueger in 1974. The word "rent" does not refer specifically to payment on a lease but rather to Adam Smith 's division of incomes into profit , wage, and economic rent. The origin of the term refers to gaining control of land or other natural resources. Georgist economic theory describes rent-seeking in terms of land rent, where
330-591: A collapse of the political regime and the interest groups that have coalesced around it can radically improve productivity and increase national income because they start with a clean slate in the aftermath of the collapse. An example of this is Japan after World War Two. But new coalitions form over time, once again shackling society to redistribute wealth and income to themselves. However, social and technological changes have allowed new enterprises and groups to emerge. A study by Laband and John Sophocleus in 1988 estimated that rent-seeking had decreased total income in
385-648: A dealership contract with an automaker or its sales subsidiary . Car dealerships also often sell spare parts and automotive maintenance services . In the United States, car dealerships have historically been an important source of state and local sales taxes. They have considerable political influence and have lobbied for regulations that guarantee their survival and profitability. By 2010, all US states had laws that prohibited manufacturers from side-stepping independent car dealerships and selling cars directly to consumers. By 2009, most states imposed restrictions on
440-506: A firm is rent-seeking therefore often accompany allegations of government corruption, or the undue influence of special interests . Rent-seeking can prove costly to economic growth; high rent-seeking activity makes more rent-seeking attractive because of the natural and growing returns that one sees as a result of rent-seeking. Thus organizations value rent-seeking over productivity. In this case, there are very high levels of rent-seeking with very low levels of output. Rent-seeking may grow at
495-473: A showroom, mechanical service, and body repair facilities, as well as to provide storage for used and new vehicles. Many dealerships are located out of town or on the edge of town centers. An example of a traditional single proprietorship car dealership was Collier Motors in North Carolina. Many modern dealerships are now part of corporate-owned chains with hundreds of locations. Dealership profits in
550-483: A sub-optimal environment for exporters as they were able to invest in rent seeking activities ( lobbying ) to gain access to EPZ to gain tax and tariff exemptions. In some cases, rent-seeking can provide a net positive for an economy. Shannon K. Mitchell's article "The Welfare Effects of Rent-Saving and Rent-Seeking" provides such an example through a model of rent-seeking when firms need to expand to obtain their exporting rents. Economists such as Lord Adair Turner ,
605-616: A theoretical standpoint, the moral hazard of rent-seeking can be considerable. If "buying" a favorable regulatory environment seems cheaper than building more efficient production, a firm may choose the former option, reaping incomes entirely unrelated to any contribution to total wealth or well-being. This results in a sub-optimal allocation of resources – money spent on lobbyists and counter-lobbyists rather than on research and development , on improved business practices, on employee training , or on additional capital goods – which slows economic growth. Claims that
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#1732790579434660-765: A variety of channels, including mail order, department stores, and traveling representatives. For example, Sears made its first attempt at selling a gasoline-engined chain-drive high-wheeler in 1908 through its mail-order catalog and starting in 1951 the Allstate through select its stores and the catalog. Fred Koller opened the first dedicated car dealership in 1889. Known as the Reading Automobile Company, Koller sold cars manufactured in Cleveland, Ohio at his dealership in Reading, Pennsylvania. This
715-458: Is a related term for the collusion between firms and the government agencies assigned to regulate them, which is seen as enabling extensive rent-seeking behavior, especially when the government agency must rely on the firms for knowledge about the market. Studies of rent-seeking focus on efforts to capture special monopoly privileges such as manipulating government regulation of free enterprise competition. The term monopoly privilege rent-seeking
770-441: Is a result of rent-seeking among wealthy tax payers. Laband and John Sophocleus suggest that the lack of empirical evidence on rent-seeking is due to the broad scope of rent-seeking and rent avoidance activities. Additionally, they suggest that many economic performance measures, such as Gross Domestic Product, include goods and services that are part of the rent-seeking process. In 2023, Angus Deaton wrote: In retrospect it
825-470: Is an often-used label for this particular type of rent-seeking. Often-cited examples include a lobby that seeks economic regulations such as tariff protection, quotas, subsidies, or extension of copyright law. Anne Krueger concludes that "empirical evidence suggests that the value of rents associated with import licenses can be relatively large, and it has been shown that the welfare cost of quantitative restrictions equals that of their tariff equivalents plus
880-690: Is defined by rent-seeking theorists as a strictly physical property but ignores the rights that surround and define the product. He further asserts that rent-seeking theorists ignore a fundamental principle of being economic actors: that we live in markets of scarce resources and it's how we use these resources which drives supply and demand , and the notion of "wasted resources" rejects our preferences to allocate those resources. Writing in The Review of Austrian Economics , Ernest C. Pasour says that there may be difficulties distinguishing between beneficial profit-seeking and detrimental rent-seeking. From
935-428: Is not so surprising that free markets, or at least free markets with a government that permits and encourages rent seeking by the rich, should produce not equality but an extractive elite that predates on the population at large. Utopian rhetoric about freedom has led to an unjust social dystopia, not for the first time. Free markets with rent seekers are not the same as competitive markets; indeed, they are often exactly
990-612: Is permitted, Mercedes-Benz opened city centre brand stores. Tesla Motors has rejected the dealership sales model based on the idea that dealerships do not properly explain the advantages of their cars, and they could not rely on third-party dealerships to handle their sales. However, in the United States, direct manufacturer auto sales are prohibited in almost every state by franchise laws requiring that new cars be sold only by dealers. In response, Tesla has opened city centre galleries where prospective customers can view cars that can only be ordered online. These stores were inspired by
1045-452: Is the creation of wealth, while rent-seeking is " profiteering " by using social institutions, such as but not limited to the power of the state, to redistribute wealth among different groups without creating new wealth. In a practical context, income obtained through rent-seeking may contribute to profits in the standard, accounting sense of the word . The Tullock paradox is the apparent paradox , described by economist Gordon Tullock , on
1100-543: Is the dividing line between a rent-seeker and a property developer , which need not be the same person. Rent-seeking is an attempt to obtain economic rent (i.e., the portion of income paid to a factor of production in excess of what is needed to keep it employed in its current use) by manipulating the social or political environment in which economic activities occur, rather than by creating new wealth . Rent-seeking implies extraction of uncompensated value from others without making any contribution to productivity . Because
1155-417: Is the limiting of access to lucrative occupations, as by medieval guilds or modern state certifications and licensures . According to some libertarian perspectives, taxi licensing is a textbook example of rent-seeking. To the extent that the issuing of licenses constrains overall supply of taxi services (rather than ensuring competence or quality), forbidding competition from other vehicles for hire renders
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#17327905794341210-441: Is then the total amount from the government-provided benefits and instances of tax avoidance (valuing benefits and avoided taxes at zero). Dougan says that the "total rent-seeking costs equal the sum of aggregate current income plus the net deficit of the public sector". Mark Gradstein writes about rent-seeking in relation to public goods provision, and says that public goods are determined by rent seeking or lobbying activities. But
1265-404: Is thought to be the first dealership dedicated solely to selling cars—meaning it hadn’t initially been established to sell horse-drawn carriages. Today, direct sales by an automaker to consumers are limited by most states in the U.S. through franchise laws that require new cars to be sold only by licensed and bonded, independently owned dealerships. The first woman car dealer in the United States
1320-401: Is used to move vehicles from the factory to the dealerships. This includes international and domestic shipping. It was largely a commercial activity conducted by manufacturers, dealers, and brokers. Internet use has encouraged this niche service to expand and reach the general consumer marketplace. Rent-seeking Rent-seeking is the act of growing one's existing wealth by manipulating
1375-461: The Apple Stores . Tesla's model was the first of its kind, and has given them unique advantages as a new car company. In economic theory, car dealerships can be characterized as franchisees and the automobile manufacturers as franchisors. A franchise relationship can be beneficial to both parties, as the franchisee can sell a well-made and attractive product while the franchisor can rely on
1430-463: The (otherwise consensual) transaction of taxi service a forced transfer of part of the fee, from customers to taxi business proprietors. The concept of rent-seeking would also apply to corruption of bureaucrats who solicit and extract "bribe" or "rent" for applying their legal but discretionary authority for awarding legitimate or illegitimate benefits to clients. For example, taxpayers may bribe officials to lessen their tax burden. Regulatory capture
1485-587: The 1940s, he opened dealerships to sell new cars, starting with Studebaker cars and trucks in 1937, and Oldsmobile in 1946. Garff's son, Robert H. Garff , was his successor in running the company. Besides his own involvement with Garff Enterprises, Garff's other businesses included the Deseret Livestock Company and Skull Valley Ranches. He served as director of First Security Corporation for 25 years, president of Fidelity American Life Insurance Co., and director of Detroiter Mobile Homes,
1540-502: The 1960s with Joaquín Balaguer 's response to pressure from the United States to open the Dominican Republic's export market. At the time, the United States was a massive trading partner for sugar while providing foreign aid and military support which allowed Balaguer's regime to take hold. Joaquín Balaguer used EPZ to allow for some markets to remain tariffed while appeasing the markets facing political pressures. This created
1595-664: The European Commission determined that it was anticompetitive for car manufacturers to prohibit dealers from carrying multiple car brands. Car manufacturers in the European Union are increasingly shifting towards selling cars directly to customers without reliance on independent dealers. Volvo has announced plans to sell all vehicles directly to customers by 2030. Multibrand and multi-maker car dealers sell cars from different and independent carmakers. Some are specialized in electric vehicles . Auto transport
1650-406: The European Union, car manufacturers were permitted from 1985 to 2006 to enter into contracts with car dealerships that restricted what kinds of cars that dealers were permitted to sell. Car manufacturers were able "to impose qualitative, quantitative and geographical restrictions on supply by selling their cars only through a limited number of dealers bound by strict franchise agreements." In 2006,
1705-462: The Tullock paradox: The classic example of rent-seeking, according to Robert Shiller , is that of a property owner who installs a chain across a river that flows through their land and then hires a collector to charge passing boats a fee to lower the chain. There is nothing productive about the chain or the collector, nor do passing boats get anything in return. The owner has made no improvements to
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1760-560: The US by 45 percent. Both Dougan and Tullock affirm the difficulty of finding the cost of rent-seeking. Rent-seekers of government-provided benefits will in turn spend up to that amount of benefit to gain those benefits, in the absence of, for example, the collective-action constraints highlighted by Olson. Similarly, taxpayers lobby for loopholes and will spend the value of those loopholes, again, to obtain those loopholes (again absent collective-action constraints). The total of wastes from rent-seeking
1815-496: The US mainly come from servicing , some from used cars , and little from new cars. Most automotive manufacturers have shifted the focus of their franchised retailers to branding and technology. New or refurbished facilities are required to have a standard look for their dealerships and have product experts to liaise with customers. Audi has experimented with a hi-tech showroom that allows customers to configure and experience cars on 1:1 scale digital screens. In markets where it
1870-424: The United States through lobbying for government policies that let the wealthy and powerful get income, not as a reward for creating wealth, but by grabbing a larger share of the wealth that would otherwise have been produced without their effort. Thomas Piketty , Emmanuel Saez , and Stefanie Stantcheva have analyzed international economies and their changes in tax rates to conclude that much of income inequality
1925-554: The consumer. It has been shown that rent-seeking by bureaucracy can push up the cost of production of public goods . It has also been shown that rent-seeking by tax officials may cause loss in revenue to the public exchequer. Mançur Olson traced the historic consequences of rent seeking in The Rise and Decline of Nations . As a country becomes increasingly dominated by organized interest groups, it loses economic vitality and falls into decline. Olson argued that countries that have
1980-421: The cost of economic growth because rent-seeking by the state can easily hurt innovation. Ultimately, public rent-seeking hurts the economy the most because innovation drives economic growth. Government agents may initiate rent-seeking, as by soliciting bribes or other favors from the individuals or firms that stand to gain from having special economic privileges, which opens up the possibility of exploitation of
2035-503: The creation of new dealerships to compete with incumbent dealerships. Economists have characterized these regulations as a form of rent-seeking that extracts rents from manufacturers of cars, increases costs for consumers, and limits entry of new car dealerships while raising profits for incumbent car dealers. Research shows that as a result of these laws, retail prices for cars are higher than they otherwise would be. The early cars were sold by automakers to customers directly or through
2090-554: The former chair of the British Financial Services Authority , have argued that innovation in the financial industry is often a form of rent-seeking. The phenomenon of rent-seeking in connection with monopolies was first formally identified in 1967 by Gordon Tullock . A 2013 study by the World Bank showed that the incentives for policy-makers to engage in rent-provision is conditional on
2145-476: The franchisee to incur downstream costs and use its local relationships to sell more products and services. The franchisor can act opportunistically by imposing constraints and burden on the franchisee after the latter has incurred sunk costs , such as investing in physical assets and building up a reputation with customers. The franchisor could for example require that cars be sold at low prices, services be performed for little compensation. The franchisee could on
2200-450: The gain to the rent-seeker. Luigi Zingales frames it by asking, "Why is there so little money in politics?" because a naïve model of political bribery and/or campaign spending should result in beneficiaries of government subsidies being willing to spend an amount approaching the value of the profits derived from the subsidies themselves, when in fact only a small fraction of that is spent. Several possible explanations have been offered for
2255-458: The institutional incentives they face, with elected officials in stable high-income democracies the least likely to indulge in such activities vis-à-vis entrenched bureaucrats and/or their counterparts in young and quasi-democracies. In the 1980s, critiques of rent-seeking theory began to emerge, questioning the ambiguity of the concept of "wasted resources" and the reliability of the assumptions being made from it. Samuels argues that productivity
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2310-406: The low costs of rent-seeking relative to the gains from rent-seeking. The paradox is that rent-seekers wanting political favors can bribe politicians at a cost much lower than the value of the favor to the rent-seeker. For instance, a rent seeker who hopes to gain a billion dollars from a particular political policy may need to bribe politicians with merely ten million dollars, which is about 1% of
2365-604: The market, such as Tesla , have been restricted by this model and have either been forced out or been forced to work around the franchise model, facing constant legal pressure. According to a 2023 survey by the Sierra Club, two-thirds of US car dealerships did not have electric or hybrid vehicles for sale. Reasons for this include supply chain difficulties, as well as a need for car dealers to make substantial investments in new employee training and infrastructure to be able to sell, service and maintain electric vehicles. In
2420-494: The nature of rent-seeking implies a fixed cost payment, only wealthy participants engage in these activities as a means of protecting their wealth from expropriation. Some rent-seeking behaviors, such as the forming of cartels or the bribing of politicians, are illegal in many market-driven economies. Rent-seeking is distinguished in theory from profit-seeking , in which entities seek to extract value by engaging in mutually beneficial transactions. Profit-seeking in this sense
2475-614: The other hand act opportunistically by using its local monopoly to perform poor customer service, charge customers more and pass those unnecessarily high costs to the franchisor. Car dealerships have lobbied for regulations that increase the survival and profitability of car dealerships: Economists have characterized these laws as a form of rent-seeking that extracts rents from manufacturers of cars and increases costs for consumers of cars while raising profits for car dealers. Multiple studies have shown that regulations that protect car dealerships increase car costs for consumers and limit
2530-752: The profitability of manufacturers. The issuance of new dealership licenses is subject to geographical restriction; if there is already a dealership for a company in an area, no one else can open one. This has led to dealerships becoming in essence hereditary, with families running dealerships in an area since the original issuance of their license with no fear of competition or any need to prove qualification or consumer benefit (beyond proving they meet minimum legal standards), as franchises in most jurisdictions can only be withdrawn for illegal activity and no other reason. This has led to consumer campaigns for establishment or reform, which have been met by huge lobbying efforts by franchise holders. New companies trying to enter
2585-667: The question is whether private provision with free-riding incentives or public provision with rent-seeking incentives is more inefficient in its allocation. Political rent-seeking can also affect immigration. Welfare states incentivise unproductive migration and can create continuation of past behaviour of not accumulating personal wealth and being dependent on government transfers. Alternatively, productive migrants are incentivised to leave rent-seeking societies, possibly resulting in further economic decline. The Nobel Memorial Prize-winning economist Joseph Stiglitz has argued that rent-seeking contributes significantly to income inequality in
2640-446: The river and is not adding value in any way, directly or indirectly, except for themselves. All they are doing is finding a way to obtain money from something that used to be free. An example of rent-seeking in a modern economy is spending money on lobbying for government subsidies to be given wealth that has already been created, or to impose regulations on competitors, to increase one's own market share. Another example of rent-seeking
2695-511: The social or political environment without creating new wealth. Rent-seeking activities have negative effects on the rest of society. They result in reduced economic efficiency through misallocation of resources , stifled competition , reduced wealth creation , lost government revenue , heightened income inequality , risk of growing corruption and cronyism , decreased public trust in institutions, and potential national decline. Successful capture of regulatory agencies (if any) to gain
2750-471: The value of land largely comes from the natural resources native to the land, as well as collectively paid for services, for example: State schools, law enforcement, fire prevention, mitigation services, etc. Rent seeking to the Georgist does not include those persons that may have invested substantial capital improvements to a piece of land, but rather those that perform in their role as mere titleholder. This
2805-580: The value of the rents". Rent-seeking through government enterprise takes the form of seeking subsidies and avoiding tariffs . This seems like the actions of a firm looking for investment in productivity but in doing so creates an exclusionary effect for more productive firms. Lotta Moberg presents an argument that export processing zones (EPZ) allow governments to choose exporting industries which receive tariffs allowing for rent seeking to take place. An example of this occurred in Latin America in
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#17327905794342860-745: The world's largest mobile home dealer for some time. Garff was active in community and civic service, including as president of the Utah Automobile Dealers Association, executive director of the Boy Scouts of America national board , chairman of the Utah Republican Party for two decades, YMCA board of directors, Brigham Young University Achievement Council, and the University of Utah's National Advisory Council, National Board of Advisors, and Business School Advisory Committee. In 1978, he established
2915-550: Was Rachel "Mommy" Krouse who in 1903 opened her business, Krouse Motor Car Company, in Philadelphia , Pennsylvania . The number of car dealerships in the US peaked in 1927 at 53,125 and steadily decreased over the next decades. By 1960, there were 33, 658 dealerships; by 1980, 23,379; and by 2001, 22,007. Car dealerships are usually franchised to sell and service vehicles by specific companies. They are often located on properties offering enough room to have buildings housing
2970-785: Was also inducted into the Beehive Hall of Fame in 1996 and received the Silver Beaver Award from the Boy Scouts of America. Garff was an Honorary Colonel in the Utah National Guard and for 12 years was Honorary Consul for the Federal Republic of West Germany . The Ken Garff Automotive Group is a large car dealership conglomerate. The company, or one of its dealerships, according to a January 2004 survey conducted by Dan Jones & Associates,
3025-466: Was the second-most mentioned car dealership by Utahns when asked to name a car dealer after Larry H. Miller Dealerships . The company is currently associated with 26 car dealerships in Utah. Kendall's grandson, John Garff, is currently the president of the company. Automobile dealership A car dealership , or car dealer , is a business that sells new or used cars , at the retail level, based on
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