Political Cronyism

Abstract:     
This paper analyzes incentives for cronyism in politics within an agency problem model with moral hazard. The analysis focuses on the institutional features, which define contractual and appointment procedures within political organizations. The institutional framework does not allow explicit contracting with politicians. They are motivated by reelection incentives and just need to guarantee that their team performance exceeds the minimum threshold required for reelection. This ends up lowering the returns to bringing in efficient individuals and increases the incentives to appoint less efficient friends. Moreover, the nature of political appointments (such that the subordinate's reappointment is conditioned on the chief's reelection) generates a collective action problem among the subordinates appointed by the politician. As a result, the cronyism problem worsens even further.

Number of Pages in PDF File: 19

Keywords: Cronyism, meritocracy, politician, subordinates, political agency

JEL Classification: D72, D86

working papers series