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

Caroline Fohlin and Noah MacDonald

No 20816, CEPR Discussion Papers from Centre for Economic Policy Research

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.

JEL-codes: D73 G14 N22 P16 (search for similar items in EconPapers)
Date: 2025-11
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