On crony capitalism

Abstract

This paper analyzes the nebulous concept of ‘crony capitalism’ and its association with anticompetitive regulatory practices. It argues that presence of such practices may be necessary for identification of crony capitalism but is not sufficient. In particular, we present a mathematical model where a rational, revenue-maximizing government finds it optimal to allocate a monopoly license on the first-come, first-served basis, rather than by conducting an auction, when monopoly profits are not expected to be high in short term. Thus, mere allocation of property rights without competitive bidding cannot be classified as crony capitalism.