A bill pending before the Legislature in the tiny island nation of WooHoo would prohibit private companies from selling canoe insurance and make the state the single payer of claims for canoe accidents. Private insurance companies that have made above normal profits have spent large sums of money trying to prevent the legislature from passing this bill into law. This is an example of

A) government failure.
B) collusion.
C) an externality.
D) rent-seeking behavior.

Question

Veronica Davis · Accepted Answer

Final Answer : D, Explanation :  This is an example of rent-seeking behavior, where private insurance companies are spending large sums of money to influence legislation in a way that would prevent the loss of their profits from selling canoe insurance, rather than creating new wealth or value.

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