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Cronyism in Business, Public Sector and Politics

  • Zudenkova, Galina

This paper contrasts the incentives for cronyism in business, the public sector and politics within an agency problem model with moral hazard. The analysis is focused on the institutional differences between private, public and political organizations. In business, when facing a residual claimant contract, a chief manager ends up with a relatively moderate rst-best level of cronyism within a …firm. The institutional framework of the public sector does not allow explicit contracting, which leads to a more severe cronyism problem within public organizations. Finally, it is shown that the nature of political appointments (such that the subordinate's reappointment is conditioned on the chief's re-election) together with implicit contracting makes political cronyism the most extreme case. JEL classifi…cation: D72, D73, D86. Keywords: Cronyism; Meritocracy; Manager; Bureaucrat; Politician.

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File URL: http://hdl.handle.net/2072/151814
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Paper provided by Universitat Rovira i Virgili, Department of Economics in its series Working Papers with number 2072/151814.

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Date of creation: 2011
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Handle: RePEc:urv:wpaper:2072/151814
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  10. Alberto Alesina & Guido Tabellini, 2007. "Bureaucrats or Politicians? Part I: A Single Policy Task," Levine's Working Paper Archive 321307000000000870, David K. Levine.
  11. Alberto Alesina & Guido Tabellini, 2007. "Bureaucrats or Politicians? Part II: Multiple Policy Tasks," Levine's Working Paper Archive 321307000000000875, David K. Levine.
  12. Vincenzo Scoppa, 2009. "Intergenerational transfers of public sector jobs: a shred of evidence on nepotism," Public Choice, Springer, vol. 141(1), pages 167-188, October.
  13. Prendergast, Canice & Topel, Robert H, 1996. "Favoritism in Organizations," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 958-78, October.
  14. Taylor, Curtis R, 2000. "The Old-Boy Network and the Young-Gun Effect," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(4), pages 871-91, November.
  15. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
  16. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
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