Abstract
AbstractThe common sensical definition of favoritism implies some kind of discrimination. We propose a model where a group of agents commit to give preference to their members when making job offers. This endogamic behavior is advantageous because members enjoy preferential job offers, but they incur in link costs and potential efficiency losses. Unlike the standard approach to favoritism, agents in our model make strategic joining decisions and as a result of the counterbalancing effects of favoritism, an optimal clique size appears in equilibrium. We show that favoritism is not compatible with large inefficiency losses and that there exists a non-monotonic relation between the unemployment level and favoritism practices. Societies with multiple equilibria are also found.
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