Deconstructing nepotism

We present a laboratory experiment to test the strength of two motives for engaging in nepotism: beliefs and favoritism. We use real-world groups: students from residential colleges at Rice University.  Specifically, we use experiments to test whether the ability to choose a partner in a two-person trust game affects individual behavior, and collect additional information that allows us to test the importance of these two motives. We adapt this game by giving the first mover the ability to choose the group from which the second mover is drawn: the second mover is either a member of the proposer’s primary group (in-group), or is drawn from the general population. The productivity of in-group members is varied (by design) relative to out-group members. We compare one set of treatments where first movers can choose their partners to a parallel set where this choice mechanism is removed. This mimics an anti-nepotism policy intervention that forbids discrimination on the basis of group membership. We address three central questions. First, why do individuals engage in nepotism, even when it is costly to them: Is it out of concern for the wellbeing of the group, or is it a strategic choice? Secondly, what is the effect of implementing an anti-nepotism law on individual behavior? And finally, regardless of its impact on overall efficiency, is engaging in nepotism profitable for the nepotist?  We find that when nepotism is “free” (i.e., in-group members are as productive as others in the population), those who engage in nepotism are motivated by favoritism. However, when nepotism is “costly” (i.e., in-group members are less productive), favoritism is not a significant factor, but beliefs about reciprocity play an important role. In addition, risk-averse individuals are more likely to engage in costly nepotism. The introduction of anti-nepotism laws reduces both trust and reciprocity. For the potential nepotist, partnering with an in-group member yields lower profits only when the anti-nepotism law is in effect and the group member is less productive. These results help to explain why nepotism persists, and the conditions under which it is beneficial.