Question

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

Option C: rent-seeking.

Step-by-step solution

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.

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.