The Brother in Law Effect
AbstractWhen a firm is forced to pay abnormally high wages, hiring transfers rents. This effectively endows the employer with the ability to grant favors, and he may wish to do so even at some cost to efficient production. We refer to this as theâ"brother-in-law effect". This article analyzes its consequences. When the brother-in-law effect is due to unionization, decisions regarding both the number and type of workers employed could be inefficient; overemployment could obtain even relative to the workforce that would be employed without unionization. We also identify cases in which nepotism improves efficiency. Copyright (2010) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.
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Date of creation: 23 Oct 2006
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Other versions of this item:
- David K Levine & Federico Weinschelbaum & Felipe Zurita, 2005. "The Brother in Law Effect," Documentos de Trabajo 303, Instituto de Economia. Pontificia Universidad Católica de Chile..
- Federico Weinschelbaum & Davide K. Levine & Felipe Zurita, 2005. "The Brother in Law Effect," Working Papers 89, Universidad de San Andres, Departamento de Economia, revised Dec 2005.
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