Nepotism, political competition and overemployment

Abstract

We extend the research on nepotism in public institutions by first investigating the determinants of nepotism, then by establishing the association between nepotism levels and overstaffing. We take advantage of novel and uniquely reliable data on levels of nepotism within Lithuanian municipalities to test three expectations: first, we expect to see a higher level of nepotism in municipalities with fewer economic opportunities. Second, we hypothesize that nepotism is more prevalent in regions with less democratic accountability. Third, we argue that because nepotism distorts institutional incentives, we should observe an association between nepotism and overstaffing of public institutions. Our analysis does not ultimately show a meaningful relationship between the supply of economic opportunities and penetration of relative networks in public institutions. Yet, our work does confirm that robust political competition increases accountability and reduces levels of state exploitation. We also establish a link between nepotism and a swollen public sector: the penetration of nepotism goes hand in hand with higher levels of employment in Lithuanian municipality administrations.