Cronyism in Business, Public Sector and Politics

This paper contrasts the incentives for cronyism in business, the public sector and politics within an agency problem model with moral hazard. The analysis is focused on the institutional differences between private, public and political organizations. In business, when facing a residual claimant contract, a chief manager ends up with a relatively moderate first-best level of cronyism within a firm. The institutional framework of the public sector does not allow explicit contracting, which leads to a more severe cronyism problem within public organizations. Finally, it is shown that the nature of political appointments (such that the subordinate's reappointment is conditioned on the chief's re-election) together with implicit contracting makes political cronyism the most extreme case.Cronyism; Meritocracy; Manager; Bureaucrat; Politician.

The Political Economy of Crony Capitalism: A Case Study of the Collapse of the Largest Croatian Conglomerate

Initially, cronyism was considered to be specific to Asian countries. Further analyses recognized characteristics of crony capitalism all over the world. According to the model presented in the paper, crony capitalism emerges in circumstances of political instability as a solution for the problem of economic growth. The model enables the analysis of cronyism in Croatia and an investigation into the question whether features of crony capitalism were a consequence of privatisation and the transition from socialism. The paper concludes that cronyism is primarily a political phenomenon and that crony capitalism cannot be reduced to its economic effects. Growth serves as a justification for the system of privileges. The collapse of Agrokor, the largest Croatian conglomerate, illustrates the development of crony capitalism in Croatia and its relation to the privatisation process

The Political Economy of Crony Capitalism: A Case Study of the Collapse of the Largest Croatian Conglomerate

Initially, cronyism was considered to be specific to Asian countries. Further analyses recognized characteristics of crony capitalism all over the world. According to the model presented in the paper, crony capitalism emerges in circumstances of political instability as a solution for the problem of economic growth. The model enables the analysis of cronyism in Croatia and an investigation into the question whether features of crony capitalism were a consequence of privatisation and the transition from socialism. The paper concludes that cronyism is primarily a political phenomenon and that crony capitalism cannot be reduced to its economic effects. Growth serves as a justification for the system of privileges. The collapse of Agrokor, the largest Croatian conglomerate, illustrates the development of crony capitalism in Croatia and its relation to the privatisation process

Cronyism in Business, Public Sector and Politics

This paper contrasts the incentives for cronyism in business, the public sector and politics within an agency problem model with moral hazard. The analysis is focused on the institutional differences between private, public and political organizations. In business, when facing a residual claimant contract, a chief manager ends up with a relatively moderate first-best level of cronyism within a firm. The institutional framework of the public sector does not allow explicit contracting, which leads to a more severe cronyism problem within public organizations. Finally, it is shown that the nature of political appointments (such that the subordinate's reappointment is conditioned on the chief's re-election) together with implicit contracting makes political cronyism the most extreme case

Informational Cronyism

If Maher Kara, the Citigroup analyst at the center of the Salman case now before the Supreme Court, was forbidden under SEC Rule 10b-5 from trading securities for his own account while in possession of the valuable secrets to which his job gave him access, should he instead be able to give that information to family members simply in order to enrich them? I suspect that to anyone unfamiliar with the fine line drawing of federal insider trading law, the answer is clearly no. There is probably no more common form of corruption than generously shoveling the fruits of power and privilege to family and close friends. Cultures lacking a strong rule of law make it an art form

Favoritism: Ethical Dilemmas Viewed Through Multiple Paradigms

Favoritism is a controversial issue in many cultural settings. Related terms include nepotism and cronyism; all three are identified with misconduct in the merit-based business world. The flip side is ethics — the principles of conduct governing an individual or a group (Merriam-Webster, 2012). According to John Dewey (1902), “Ethics is the science that deals with conduct insofar as this is considered to be right or wrong, good or bad.” Since favoritism is perceived as being linked to workplace misconduct, it is necessary to use ethics in examining this issue. The current study applied four lenses of ethics identified by Shapiro and Stefkovich (2011) to help people deal with ethical challenges: justice, critique, care, and the profession. Findings have implications for criteria used to handle ethical challenges in the workplace

Professionals, Politicos, and Crony Attorneys General: A Historical Sketch of the U.S. Attorney General as a Case for Structural Independence

Historically, the office of the U.S. Attorney General has been identified as “quasi-judicial” or having “quasi-judicial” aspects. Other parts of the Department of Justice (DOJ) have also been described as quasi-judicial, such as the Office of Legal Counsel and the Solicitor General. A glance at a list of past attorneys general seems to confirm this judicial aspiration in practice. Nine attorneys general became U.S. Supreme Court justices, and others were notably judicious and professional in their tenure in the office. Of course, there are some infamous examples of unprofessional cronyism—the appointment of friends or associates to positions of authority, without properly considering their qualifications—but there are famous counterexamples of those who stood up to the presidents they served in defense of legal principles. The “insider” friend, fixer, or brother of the president was presumably the exception. But a closer examination of the history of the Office of the Attorney General reveals a surprising pattern: the nineteenth century had relatively few crony-ist appointments in an era known for patronage, but the twentieth century ushered in more partisan insiders, hacks, and fixers, just as the DOJ’s power grew enormously. This shift was remarkably bipartisan, starting under President Woodrow Wilson, a Democrat, and then continuing immediately after under President Warren G. Harding, a Republican. Perhaps this turn in the late 1910s started an era of partisan escalation as each political party pushed the norms as they rotated into power. This Article suggests that these trends have contributed to making the DOJ partisan and allowing some presidents to imagine the Attorney General as the president’s personal lawyer and fixer. In just over half of the past century, the Office of the Attorney General has been filled by a partisan insider

Why middle class activism surprises economists

A middle class in modern societies often causes political ferment and spearheads mass movements against the status quo. The political turmoils that swept Brazil, Bulgaria and Turkey in 2013 provide recent examples. The demonstrations in Turkey grew from a protest against plans for a construction project; an increase in public transport prices triggered the protests in Brazil; and the government corruption and cronyism set off the protests in Bulgaria

Hungary in 2017: could the left and far-right unite to keep Orban out of power?

Hungary is due to hold its next parliamentary election in early-2018, with this year likely to see a progressive build-up of political activity prior to the start of the campaign. Abel Bojar previews what 2017 could have in store for the country’s political parties, noting that the government’s record on cronyism and corruption may well be the most serious threat to Viktor Orban’s hold over power

Institutions and Multinational Ownership Strategy

This paper examines the impact of institutions on a multinational firm’s ownership strategy. We develop an international joint venture (IJV) model in which a multinational firm and its local partner both can undertake costly ex post actions to increase their revenue share specified by the ex ante IJV contract. The model captures the effects of two institutional features on the optimal IJV ownership structure: contract enforceability and cronyism. We introduce the IJV model into an industry equilibrium framework to analyze the impact of institutions on a multinational firm’s choice between forming an IJV or setting up a wholly-owned subsidiary. Ce papier examine l'impact des institutions sur la stratégie de propriété d’une entreprise multinationale. Nous développons un modèle de coentreprise internationale dans lequel une entreprise étrangère et son partenaire local peuvent ex post entreprendre des actions coûteuses pour augmenter leur part de revenus indiquée dans le contrat de coentreprise. Le modèle analyse les impacts de deux caractéristiques institutionnelles sur la structure de propriété optimale : le renforcement du contrat et le copinage. Nous introduisons le modèle de coentreprise dans un modèle d'équilibre général pour analyser l'impact des institutions sur le mode d’entrée des entreprises multinationales.liability of foreignness, international joint venture, contract enforceability, cronyism, coentreprise internationale, renforcement du contrat, copinage