MICRO/THEORY: The Confidant: A Model of Nepotism; Professor Che Jiahua (China Europe International Business School)

Abstract

Corruption, in its various forms, remains a persistent challenge in societies worldwide. Among these manifestations, nepotism, characterized by preferential treatment based on political connections, stands out as a widely documented phenomenon across time, cultures, and political institutions. While an expanding body of literature presents compelling evidence on the prevalence of nepotism and explores its implications for efficiency, the analysis of why nepotism emerges, particularly in ways distinct from other forms of corruption, remains surprisingly scarce. This paper introduces a model of strategic communication, offering insights into the emergence of nepotism when socially benevolent government officials seek information to maximize social welfare, only to become ensnared by their confidants, resulting in a compromised societal well-being.  Our analysis suggests that conventional policy instruments designed to align the private interests of government officials with the public interest are insufficient in effectively addressing the pervasive issue of nepotism.