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Does cronyism pay? Costly ingroup favoritism in the lab

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  • Sheheryar Banuri
  • Catherine Eckel
  • Rick K. Wilson

Abstract

Cronyism in firms arises when favoritism toward an ingroup affects personnel decisions. Two main motives underlie cronyism: profit, if an ingroup employee works harder; or altruism, if used to transfer resources. In a lab‐experiment trust game with naturally‐occurring groups, an employer (proposer) faces an employee (responder) who is or is not an ingroup member. We see that both motives play a role. Cronyism is more likely from employers who are more altruistic to the ingroup in a dictator game; and even low‐productivity (by design) ingroup members reciprocate trust generously. Cronyism pays for those who engage in it.

Suggested Citation

  • Sheheryar Banuri & Catherine Eckel & Rick K. Wilson, 2022. "Does cronyism pay? Costly ingroup favoritism in the lab," Economic Inquiry, Western Economic Association International, vol. 60(3), pages 1092-1110, July.
    • Handle: RePEc:bla:ecinqu:v:60:y:2022:i:3:p:1092-1110
    DOI: 10.1111/ecin.13080
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