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The Rise and Spread of Favoritism Practices

Author

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  • Duran Miguel A.

    (Departamento Teoria e Historia Economica, Facultad de Ciencias Economicas, Universidad de Málaga, Malaga, Spain)

  • Morales Antonio J.

    (Universidad de Málaga, Malaga, Spain)

Abstract

The common sensical definition of favoritism implies some kind of discrimination. We propose a model where a group of agents commit to give preference to their members when making job offers. This endogamic behavior is advantageous because members enjoy preferential job offers, but they incur in link costs and potential efficiency losses. Unlike the standard approach to favoritism, agents in our model make strategic joining decisions and as a result of the counterbalancing effects of favoritism, an optimal clique size appears in equilibrium. We show that favoritism is not compatible with large inefficiency losses and that there exists a non-monotonic relation between the unemployment level and favoritism practices. Societies with multiple equilibria are also found.

Suggested Citation

  • Duran Miguel A. & Morales Antonio J., 2014. "The Rise and Spread of Favoritism Practices," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 14(1), pages 1-18, January.
    • Handle: RePEc:bpj:bejtec:v:14:y:2014:i:1:p:18:n:6
    DOI: 10.1515/bejte-2013-0003
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    References listed on IDEAS

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    1. Francois Fontaine, 2003. "Do workers really benefit from their social networks?," Macroeconomics 0311002, University Library of Munich, Germany, revised 26 Aug 2004.
    2. Ponzo, Michela & Scoppa, Vincenzo, 2011. "A simple model of favouritism in recruitment," Research in Economics, Elsevier, vol. 65(2), pages 78-88, June.
    3. David K. Levine & Federico Weinschelbaum & Felipe Zurita, 2010. "The Brother-In-Law Effect," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(2), pages 497-507, May.
    4. Miguel A. Duran & Antonio J. Morales, 2014. "A Moral Hazard Approach to Wage Discounts under Informal Hiring," Scottish Journal of Political Economy, Scottish Economic Society, vol. 61(2), pages 119-128, May.
    5. Lori A. Beaman, 2012. "Social Networks and the Dynamics of Labour Market Outcomes: Evidence from Refugees Resettled in the U.S," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(1), pages 128-161.
    6. Montgomery, James D, 1991. "Social Networks and Labor-Market Outcomes: Toward an Economic Analysis," American Economic Review, American Economic Association, vol. 81(5), pages 1407-1418, December.
    7. Ponzo, Michela & Scoppa, Vincenzo, 2010. "The use of informal networks in Italy: Efficiency or favoritism?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(1), pages 89-99, January.
    8. Michele Pellizzari, 2010. "Do Friends and Relatives Really Help in Getting a Good Job?," ILR Review, Cornell University, ILR School, vol. 63(3), pages 494-510, April.
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