Does Cronyism Pay? Costly Ingroup Favoritism in the Lab

39 Pages Posted: 11 Apr 2013 Last revised: 8 Feb 2022

See all articles by Sheheryar Banuri

Sheheryar Banuri

University of East Anglia (UEA) - School of Economic and Social Studies; University of East Anglia (UEA) - Centre for Behavioural and Experimental Social Science (CBESS)

Catherine C. Eckel

Texas A&M University

Rick K. Wilson

Rice University - Department of Political Science

Date Written: February 1, 2022

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.

Keywords: Cronyism, Group Identity, Ingroup, Discrimination, Trust, Reciprocity, Lab Experiment

JEL Classification: C92, D73, M51

Suggested Citation

Banuri, Sheheryar and Eckel, Catherine C. and Wilson, Rick K., Does Cronyism Pay? Costly Ingroup Favoritism in the Lab (February 1, 2022). Available at SSRN: https://ssrn.com/abstract=2248187 or http://dx.doi.org/10.2139/ssrn.2248187

Sheheryar Banuri

University of East Anglia (UEA) - School of Economic and Social Studies ( email )

Norwich, Norfolk NR4 7TJ
United Kingdom
+441603591246 (Phone)

HOME PAGE: http://https://www.uea.ac.uk/economics/people/profile/s-banuri

University of East Anglia (UEA) - Centre for Behavioural and Experimental Social Science (CBESS) ( email )

United Kingdom
+441603591246 (Phone)

Catherine C. Eckel (Contact Author)

Texas A&M University ( email )

5201 University Blvd.
College Station, TX 77843-4228
United States

Rick K. Wilson

Rice University - Department of Political Science ( email )

Houston, TX 77005-1892
United States

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