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Crony Capitalism and Insider Trading: Insights from the Teapot Dome Scandal

Author

Listed:
  • Fohlin, Caroline
  • MacDonald, Noah

Abstract

Using novel data from the notorious 1922 Teapot Dome scandal, we assess costs of informed trading by corrupt officials and company insiders involved in illegal federal oil lease contracts. We estimate insider gains of nearly $300 million (2025 terms). Market makers widened bid-ask spreads for oil stocks, raising costs for all investors. Despite legal insider trading, insiders only partially bid up share prices before public revelation, temporarily evading detection and delaying full information incorporation until salient news coverage broke. Our analysis underscores how cronyism and insider trading distort resource allocation and disadvantage uninformed investors, with lessons for modern regulation.

Suggested Citation

  • Fohlin, Caroline & MacDonald, Noah, 2025. "Crony Capitalism and Insider Trading: Insights from the Teapot Dome Scandal," CEPR Discussion Papers 20816, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20816
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    File URL: https://cepr.org/publications/DP20816
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    More about this item

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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