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Chapter 5: Q6. (page 114)

Tammy Hall is the mayor of a large US city. She has just established the Office of Window Safety. Because windows sometimes break and spray glass shards, every window in the city will now have to pass an annual safety inspection. Property owners must pay the $5-per-window inspection cost—and by the way, Tammy has made her nephew the new head of the Office of Window Safety. This new policy is an example of _______.

a. political corruption

b. earmarks

c. rent-seeking

d. adverse selection

Short Answer

Expert verified

Option C: rent-seeking.

Step by step solution

01

Explanation for the correct option

Rent-seeking refers to how various corporations, unions, organizations, and others gain extra profits by politically influencing the government and its policies. These rents are dispensed using various laws, hiring, or purchasing rules.

Since the mayor of the large US city has put an additional requirement which increases the cost by $5-per-window over and above the minimum cost for property owners, this comes under rent-seeking. This cost is unnecessary as the windows would have been working the same as before with no additional charges.

Thus, $5 per window is economic rent.

02

Explanation for incorrect options

Political corruption is when government officials abuse their powers and government resources for personal gain.This is illegal and can not be directed through laws or rules. The establishment of an ‘Office of Window’ safety is a legal entity, and thus, this does not come under political corruption.

The following two do not relate to the problem given in the question. This can be understood by the definitions.

  • Earmarking refers to setting aside a certain amount of money to fund an organization's specific purpose or goal.
  • Adverse selection refers to choosing a bad option/policy or rule due to a lack of information on the buyer side.

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Most popular questions from this chapter

Consider a corrupt provincial government in which each housing inspector examines two newly built structures each week. All the builders in the province are unethical and want to increase their profits by using substandard construction materials, but they can’t do that unless they can bribe a housing inspector into approving a substandard building.

a. If bribes cost \(1,000 each, how much will a housing inspector make each year in bribes? (Assume that each inspector works 52 weeks a year and gets bribed for every house he or she inspects.)

b. There is a provincial construction supervisor who gets to hire all of the housing inspectors. He himself is corrupt and expects his housing inspectors to share their bribes with him. Suppose that 20 inspectors work for him and that each passes along half the bribes collected from builders. How much will the construction supervisor collect each year?

c. Corrupt officials may have an incentive to reduce the provision of government services to help line their own pockets. Suppose that the provincial construction supervisor decides to cut the total number of housing inspectors from 20 to 10 in order to decrease the supply of new housing permits. This decrease in the supply of permits raises the equilibrium bribe from \)1,000 to \(2,500. How much per year will the construction supervisor now receive if he is still getting half of all the bribes collected by the 10 inspectors? How much more is the construction supervisor getting now than when he had 20 inspectors working in part b? Will he personally be happy with the reduction in government services?

d. What would happen if reducing the number of inspectors from 20 to 10 only increased the equilibrium bribe from \)1,000 to $1,500? In this case, how much per year would the construction supervisor collect from his 10 inspectors? How much less is the construction supervisor getting than when he had 20 inspectors working in part b? In this case, will the construction supervisor be happy with the reduction in government services? Will he want to go back to using 20 inspectors?

Consider a specific example of the special-interest effect and the collective-action problem. In 2012, it was estimated that the total value of all corn-production subsidies in the United States was about \(3 billion. The population of the United States was approximately 300 million people that year.

a. On average, how much did corn subsidies cost per person in the United States in 2012? (Hint: A billion is a 1 followed by nine zeros. A million is a 1 followed by six zeros.)

b. If each person in the United States is willing to spend only \)0.50 to support efforts to overturn the corn subsidy, and if anti-subsidy advocates can only raise funds from 10 percent of the population, how much money will they be able to raise for their lobbying efforts?

c. If the recipients of corn subsidies donate just 1 percent of the total amount that they receive in subsidies, how much could they raise to support lobbying efforts to continue the corn subsidy?

d. By how many dollars does the amount raised by the recipients of the corn subsidy exceed the amount raised by the opponents of the corn subsidy?

Look back at Figures 5.2a and 5.2b, which show the costs and benefits to voters Garcia, Johnson, and Lee of two different public goods that the government will produce if a majority of voters support them. Suppose that Garcia, Johnson, and Lee have decided to have one single vote at which the funding for both of those public goods will be decided simultaneously.

a. Given the $300 cost per person of each public good, what are Garcia’s net benefits for each public good individually and for the two combined? Will she vote yes or no on the proposal to fund both projects simultaneously?

b. What are Lee’s net benefits for each public good individually and for the two combined? Will she vote yes or no on the proposal to fund both projects simultaneously?

c. What are Johnson’s net benefits for each public good individually and for the two combined? Will he vote yes or no on the proposal to fund both projects simultaneously—or will he be indifferent?

d. Who is the median voter here? Whom will the two other voters be attempting to persuade?

True or False: The median-voter model explains why politicians so often stake out fringe positions that appeal only to a small segment of the electorate.

Jean-Baptiste Colbert was the Minister of Finance under King Louis XIV of France. He famously observed, "The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing." How does his comment relate to the special-interest effect?
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