The Brother-in-Law Effect

11 Pages Posted: 26 May 2010

See all articles by David K. Levine

David K. Levine

Washington University in St. Louis - Department of Economics; European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS)

Federico Weinschelbaum

Universidad Torcuato Di Tella - Departamento de Economia; CONICET

Felipe Zurita

Pontificia Universidad Católica de Chile

Abstract

When a firm is forced to pay abnormally high wages, hiring transfers rents. This effectively endows the employer with the ability to grant favors, and he may wish to do so even at some cost to efficient production. We refer to this as the brother-in-law effect. This article analyzes its consequences. When the brother-in-law effect is due to unionization, decisions regarding both the number and type of workers employed could be inefficient; overemployment could obtain even relative to the workforce that would be employed without unionization. We also identify cases in which nepotism improves efficiency.

Suggested Citation

Levine, David K. and Weinschelbaum, Federico and Zurita, Felipe, The Brother-in-Law Effect. International Economic Review, Vol. 51, No. 2, pp. 497-507, May 2010. Available at SSRN: https://ssrn.com/abstract=1611959 or http://dx.doi.org/10.1111/j.1468-2354.2010.00590.x

David K. Levine (Contact Author)

Washington University in St. Louis - Department of Economics ( email )

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St. Louis, MO 63130
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HOME PAGE: http://www.dklevine.com

European University Institute - Robert Schuman Centre for Advanced Studies (RSCAS) ( email )

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50016 San Domenico di Fiesole
Florence, Florence 50014
Italy

Federico Weinschelbaum

Universidad Torcuato Di Tella - Departamento de Economia ( email )

Minones 2177
1428 Buenos Aires
Argentina
541151697183 (Phone)

CONICET ( email )

Buenos Aires, C1425FQB
Argentina

Felipe Zurita

Pontificia Universidad Católica de Chile ( email )

Av Libertador General Bernardo O'Higgins 340
Santiago, Región Metropolitana 8331150
Chile
+56-2-2354 4318 (Phone)

HOME PAGE: http://www.uc.cl

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