Faculty of Economics and Business Administration Publications Database

Rent-Seeking in Elite Networks

Vig, Vikrant
Schoenherr, David
Volume: 126
Number: 4
Pages: 1638 - 1690
Month: August
ISSN-Print: 0022-3808
Link External Source: Online Version
Year: 2018

We employ a unique data set 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.