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Is Nepotism Good?

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Marcos Morian, runs Casa Gerado. A restaurant that has gained fame across Spain for its reimagining and innovation of traditional Spanish dishes that have earned it a Michelin star award alongside the Three Suns award, the most prestigious culinary award in Spain. Marcos is a fifth-generation member chef and has inherited the restaurant from his father, Pedro Morian, who together have achieved great success across Europe.

From entertainment to business and governance, nepotism is an issue intertwined with the institutions of modern society and conflicts with the contemporary ideal of a meritocracy through exclusive connections based on relationships hindering individuals of equal or greater skill from obtaining opportunities.

From an economic standpoint, nepotism is unfavourable because it bypasses rational hiring theories such as Signalling theory, where the best worker gets work representative of their talents and skill and not their relations to one another. However, other disciplines in the social sciences, such as psychology or sociology, highlight the value of such ties, where deepened socialisation and commitment can provide a competitive advantage against other firms.

The Economic Perspective

Signalling theory is a hiring model where firms know nothing about a worker's skills and productivity before hiring. However, factors such as education, skills or experience can provide a means for firms to know which worker to hire.

To simplify, the model differentiates between good workers and bad workers. Good workers can reach the expectations of the job they are applying for and the subsequent wage they receive. Bad workers cannot and are overpaid compared to their quality of output and productivity. Hiring bad workers can harm profits and high-quality, efficient output. To alleviate the asymmetric information, the worker can submit their CV or provide evidence for their experiences that can signal to employers whether they are good or bad candidates.

Nepotism in this model bypasses the process. As a result, the firm remains unaware of whether the worker can improve or harm the firm. As a result, it perpetuates inequality of opportunity, giving an unfair advantage to those with connections but fewer qualifications, which can impact the quality of output from organisations and negatively impact firms.

An Alternative Perspective

Nepotism comes in two forms. The first is entitlement Nepotism, where a Nepotist hires a worker for a position/job based on a direct social tie without alternative considerations. An example of Entitlement Nepotism is primogeniture, in which the successor has no obligation to be productive within their role because they have a universal right to that job. This would be the lousy worker in the Signalling model, with a high risk of leading to low productivity and quality of output.

An alternative is a reciprocal nepotism. Just like entitlement nepotism, a nepotist provides a role to a worker due to a relation. However, in this scenario, the worker has unique experiences with the workplace's cultural norms, practices, and traditions. Alongside the worker's skills is a familial culture of reciprocity where favours must be returned. Providing a role from a nepotist to a worker is an act of altruism by which the successor gains a position/job. Thus, the successor has the necessary skills and feels obligated to the Nepotist to reciprocate generosity through productivity. This can lead to positive output outcomes, with the successor gaining a desire to meet the expected job requirements with the personal skills already obtained.

Workers can also express these skills from nepotism through competitive advantages, such as tacit knowledge. Tacit knowledge is knowledge of a firm's business norms and activities that are inexpressable and specific to members of the firm. Obtaining and managing such forms of tacit knowledge require high levels of commitment and investment in the work environment. For example, in non-family traditional firms, trust and companionship are restricted due to personal desires or in-firm competition. However, family firms, specifically small or medium-sized, are more effective at sharing and managing tacit knowledge due to their more group oriented environment. As a result, family firm can gain a unique competitive advantage.

Family firms such as Casa Gerardo, with established traditions, social relationships and unique firm philosophies, may benefit from hiring successors such as Marcos Morian, who are not only ingratiated into the work culture of the family firm but are also dedicated to meeting the expectation of the roles they are given.

Rethinking Nepotism

To say nepotism is all good and all bad is too binary of a perspective for a social science such as economics. Although traditional modelling in economics, such as signal theory, would argue that the appointment of Marcos Morian is wrong because it bypasses the process of finding the optimal employee. Models are only a tiny representation of the complex economic reality. Although economics may point one way, the social sciences that economics resides in point in multiple other.



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