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The Brother in Law Effect

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  • David K Levine
  • Federico Weinschelbaum
  • Felipe Zurita

Abstract

Ordinarily labor market equilibrium implies that the marginal worker is indifferent to employment, and that the employer is indifferent between equally productive employees. When the marginal worker is indifferent to employment, employer preferences do not matter. If, however, the marginal worker strictly prefers to be employed, the employer can give favors, and may wish to do so even at some cost to efficient production. Not only may inefficient workers be employed, but the employer may also choose to employ too many workers. We refer to this as the brother-in law effect. When the brother-in-law effect is due to unionization, employment of brothers-inlaw leads to increased employment – under some circumstances leading even to over employment relative to the workforce that would be employed without unionization. If the employment effect is strong – because brothers-in-law are relatively good workers – nepotism improves efficiency. If the employment effect is weak – including in principalagent models where there are informational rents – nepotism is inefficient.

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Bibliographic Info

Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 784828000000000587.

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Date of creation: 23 Oct 2006
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Handle: RePEc:cla:levarc:784828000000000587

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  1. Shleifer, Andrei & Vishny, Robert W, 1994. "Politicians and Firms," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 109(4), pages 995-1025, November.
  2. Canice Prendergast & Robert H. Topel, 1993. "Favoritism in Organizations," NBER Working Papers 4427, National Bureau of Economic Research, Inc.
  3. Alberto Chong & Florencio Lopez-de-Silanes, 2004. "Privatización en México," Research Department Publications, Inter-American Development Bank, Research Department 4374, Inter-American Development Bank, Research Department.
  4. Alberto Chong & Florencio López-de-Silanes, 2005. "Privatization in Latin America : Myths and Reality," World Bank Publications, The World Bank, number 7461, August.
  5. José E. Galdón-Sánchez & James A. Schmitz Jr., 2002. "Competitive Pressure and Labor Productivity: World Iron-Ore Markets in the 1980's," American Economic Review, American Economic Association, American Economic Association, vol. 92(4), pages 1222-1235, September.
  6. Sebastian Galiani & Paul Gertler & Ernesto Schargrodsky, 2002. "The Benefits and Costs of Privatization in Argentina: A Microeconomics Analysis," Working Papers 53, Universidad de San Andres, Departamento de Economia, revised Sep 2002.
  7. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, American Economic Association, vol. 74(3), pages 433-44, June.
  8. Federico Sturzenegger & Ernesto Schargrodsky & Sebastian Galiani & Paul Gertler, 2003. "The Costs and Benefits of Privatization in Argentina: A Microeconomic Analysis," Research Department Publications, Inter-American Development Bank, Research Department 3148, Inter-American Development Bank, Research Department.
  9. Goldberg, Matthew S, 1982. "Discrimination, Nepotism, and Long-Run Wage Differentials," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 97(2), pages 307-19, May.
  10. James Andreoni & John Miller, 2002. "Giving According to GARP: An Experimental Test of the Consistency of Preferences for Altruism," Econometrica, Econometric Society, Econometric Society, vol. 70(2), pages 737-753, March.
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Cited by:
  1. Natalia Montinari & Antonio Nicolò & Regine Oexl, 2012. "Mediocrity and Induced Reciprocity," Jena Economic Research Papers 2012-053, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  2. Zudenkova, Galina, 2011. "Cronyism in Business, Public Sector and Politics," Working Papers 2072/151814, Universitat Rovira i Virgili, Department of Economics.
  3. Bramoullé, Y. & Goyal, S., 2009. "Favoritism," Cambridge Working Papers in Economics 0942, Faculty of Economics, University of Cambridge.
  4. Roberto Cortes Conde, 2008. "Spanish America Colonial Patterns: The Rio de La Plata," Working Papers 96, Universidad de San Andres, Departamento de Economia, revised Mar 2008.

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