22.42           ndian    onom
     not considered as borrowers by the banks, simply           of acquiring an asset), replacement cost adjusts the
     because they live in that area.                            effects of inflation.
        rent                                                        resiDuAl risk
     It has two different meanings in economics:                What is left after one takes out all the other shared
           (i) The first is layman i.e. the income accruing     risk exposures to an asset, also known as alpha (a).
                 from hiring land or other durable goods.             When one buys an asset one is exposed to
          (ii) The second (also known as economic               a number of risks, many of them not unique to
                 rent) is a measure of market power i.e.        the asset but reflect broader possibilities (such
                 the difference between what a factor of        as the future behaviour of stock market, interest
                 production is paid and how much it             rate, inflation or even government policies,
                 would need to be paid to remain in its         etc.). Exposure to this risk can be reduced by
                 current use.                                   diversification.
           For example, a cricket player may be paid Rs.
     40,000 a week to play for his team when he would               retAil bAnking
     be willing to turn out for only Rs. 10,000, so his         A way of doing banking business where the
     economic rent will be Rs. 30,000 a week.                   banks emphasise the individual-based lending
                                                                rather than corporate lending–also known as
        rent-seeking                                            high street banking. Such banking focusses on
     Spending time and money not on the production              consumer loans, personal loans, hire-purchase,
     of real goods and services, but rather on trying to        etc., considered more cumbersome and risky.
     get the government to change the rules so as to
     make one’s business more profitable.                           retrocession
           It is like cutting a bigger slice of the cake rather The term has got three different meanings in which
     than making the cake bigger trying to make more            it is used—
     money without producing more for customers.                      (i) The purchase of ‘reinsurance’ by a
     The term was coined by the economist Gordon                          ‘reinsurance company’ (as in the case of
     Tullock.                                                             India, the GIC going for ‘reinsurance’
                                                                          on the ‘reinsurance’ it has provided to
        rent-seeking behAviour                                            other ‘insurance companies’ operating
                                                                          in India). This limits the risk that a
     The behaviour which improves the welfare of
                                                                          reinsurance company may face, since it
     someone at the expense of someone else. A
                                                                          has purchased insurance against an ‘event’
     protection racket is the most extreme example of
                                                                          that might affect a company that it had
     it, in which one group (i.e., the protected one)
                                                                          underwritten (reinsured). If a reinsurance
     betters itself without creating welfare-enhancing
                                                                          company continues to purchase insurance
     output at all.
                                                                          it might ‘unknowingly’ buy back its own
                                                                          risk, which is known as ‘spiraling’.
        replAcement cost
                                                                     (ii) The ‘voluntary’ act of returning ceded
     The cost of replacing an asset (such as machinery,                   property by one to another which may
     etc.). Opposite to historic cost (i.e., the original cost            be a result of ‘request’ to have property