Resum:
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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 rst-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.
JEL classifi cation: D72, D73, D86.
Keywords: Cronyism; Meritocracy; Manager; Bureaucrat; Politician. |