Abstract
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 prosperityth 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.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 1638-1690 |
| Number of pages | 53 |
| Journal | Journal of Political Economy |
| Volume | 126 |
| Issue number | 4 |
| DOIs | |
| State | Published - Aug 1 2018 |
Funding
We would like to thank Oriana Bandiera, Patrick Bolton, James Dow, Armin Falk, Neal Galpin, Tarek Hassan, Christian Hellwig, Ginger Zhe Jin, Matti Keloharju, Michael Kosfeld, Jan Krahnen, Samuli Knüpfer, Stefan Lewellen, Christopher Malloy, Ulrike Malmendier, Jean- MarieMeier, AtifMian, Jörn-Steffen Pischke, Ailsa Roell, Stephen Schaefer, Kelly Shue, Rui Silva, Jan Starmans, David Thesmar, Alexander Wagner, Ivo Welch, and Luigi Zingales, as well as seminar and conference participants in Amsterdam, Berlin (Humboldt University), and Bonn, at the European Winter Finance summit, in Frankfurt, Glasgow, Helsinki, and Mainz, at the National Bureau of Economic Research, London Business School, London School of Economics, Stockholm School of Economics, the University of Warwick, the Swiss Finance Association, and theWestern Finance Association for their helpful comments.We are grateful to the Deutsche Bundesbank, especially to Klaus Düllmann and Thomas Kick, for their generous support with the construction of the data set. Haselmann thanks the Research Center SAFE, funded by the State of Hessen initiative for research LOEWE, for financial support. The empirical analysis in the paper uses proprietary data from Deutsche Bundesbank, which is stored on-site in the headquarters of Deutsche Bundesbank in Frankfurt, Germany.
ASJC Scopus subject areas
- Economics and Econometrics
