Cronyism in Business, Public Sector and Politics

Galina Zudenkova ()

MPRA Paper from University Library of Munich, Germany

Abstract: 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 first-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.

Keywords: Cronyism; Meritocracy; Manager; Bureaucrat; Politician. (search for similar items in EconPapers)
JEL-codes: D72 D73 D86 (search for similar items in EconPapers)
Date: 2011-03-15
New Economics Papers: this item is included in nep-cdm, nep-cta and nep-pol
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:30231

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