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Rent-Seeking in Elite Networks

Journal of Political Economy, Vol. 126, Issue 4, pp. 1638-1690

Authors:
Rainer Haselmann,
David Schoenherr,
Vikrant Vig
Research Area:
Law and Finance, Financial Intermediation
Date:
Aug 2018
Keywords:
-
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.

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