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Rent-Seeking in Elite Networks

Forthcoming in Journal of Political Economy

SAFE Working Paper No. 132

55 Pages Posted: 3 Feb 2017 Last revised: 10 Feb 2017

Rainer F. H. Haselmann

Goethe University Frankfurt - Research Center SAFE; Goethe University Frankfurt - Faculty of Economics and Business Administration

David Schoenherr

Princeton University, Bendheim Center for Finance

Vikrant Vig

London Business School

Date Written: January 31, 2017

Abstract

We employ a unique dataset on members of an elite service club in Germany to investigate how social connections in elite networks affect the allocation of resources. Specifically, we investigate credit allocation decisions of banks to firms inside the network. Using a quasi-experimental research design, we document misallocation of bank credit inside the network, with bankers with weakly aligned incentives engaging most actively in crony lending. Our findings, thus, resonate with existing theories of elite networks as rent extractive coalitions that stifle economic prosperity.

JEL Classification: F34, F37, G21, G28, G33, K39

Suggested Citation

Haselmann, Rainer F. H. and Schoenherr, David and Vig, Vikrant, Rent-Seeking in Elite Networks (January 31, 2017). Forthcoming in Journal of Political Economy; SAFE Working Paper No. 132. Available at SSRN: https://ssrn.com/abstract=2911062 or http://dx.doi.org/10.2139/ssrn.2911062

Rainer F. H. Haselmann

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Mertonstrasse 17-25
Frankfurt am Main, D-60325
Germany

David Schoenherr

Princeton University, Bendheim Center for Finance ( email )

26 Prospect Avenue
Princeton, NJ 08540
United States

Vikrant Vig (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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