Earmarking

What is Earmarking?

The practice of putting specific amount of money apart for a certain objective is known as earmarking. This term can be used in several other contexts. Initially, the phrase was originated from the field of agriculture.

Farmers used to cut specific notches from their livestock’s ears to mark that the animal belonged to them. In simple words, to earmark something is to flag it for a specific objective. In practice, it means to set money aside for a project.

For instance, a company may earmark an amount to upgrade its infrastructure. Or, a state government may earmark an amount to develop roads and bridges. Basically, this term of earmarking is linked with an economic sociologist – Viviana Zelizer – who discovered the practice as instilling some amount with a certain meaning associated to relational and cultural ties for the purpose the money has been earmarked for.

Thus, if you earmark money for a family member, you would treat it more cautiously than an amount earmarked for a friend. Similarly, people would be more willing to lend funds to somebody they trust.

The mental Accounting concept of Behavioural Economics is the case of personal earmarking, where people allocate funds to certain purposes or tasks.

Earmarking in Bankruptcy Law

In the law of Bankruptcy, the earmarking concept enables specific borrowed funds to be taken out from the assets of the bankrupt party, as long as these funds were lent to the borrower within 90 or lesser days of filing the bankruptcy.

Earmarking makes sure that the funds will be returned to the real creditor instead of being claimed by others during the bankruptcy proceedings. This doctrine is developed on the idea that as there was no total decrease in the asset base of the bankrupt party; the funds never belonged to them.

Earmarks in Politics

When it comes to politics, here is an example of earmarking. Let’s say that a party is initiating a ban on a toxic app. This could be a popular move among its supporters across the nation. Although the party has a regulation on minimum seats to pass this law; one member is dubious about voting as banning the app may cut down jobs for hundreds of employees.

To win this person’s vote, the party may amend the bill to put an earmark that the ones losing their jobs would be given assured joining letters in other Industry.