Abstract
This paper shows that the revolving door generates inequality of influence between financial firms and creates economic distortions. We first develop a theoretical model, introducing the notion of bureaucratic capital and stressing how the revolving door generates inequality in bureaucratic capital leading to inequality in profits. Then this prediction is tested, using a new database that tracks the revolving door process involving the 20 biggest US diversified banks. We show that regulators who supply a large stock of bureaucratic capital are more likely to be hired by the top five banks. We also develop indices of the inequality of influence between banks. We show that banks in the top revenue quintile concentrate around 80% of revolving door movements. Goldman Sachs appears as the prime beneficiary of this process, capturing approximately 30% of the total stock of bureaucratic capital.
| Original language | English |
|---|---|
| Pages (from-to) | 595-614 |
| Number of pages | 20 |
| Journal | Journal of Institutional Economics |
| Volume | 15 |
| Issue number | 4 |
| DOIs | |
| State | Published - 1 Aug 2019 |
Bibliographical note
Publisher Copyright:Copyright © 2019 Millennium Economics Ltd.
Funding
This research was supported by the Aharon Meir Center for Banking and Economic Policy, the French Agence Nationale de la Recherche (ANR) and the Ferdi (Fondation pour les Etudes et Recherches sur le Développement International) through the program "Investissements d'avenir" (ANR-10-LABX-14-01). We are grateful to Janos Bartok, Gonzalo Caballero, François Facchini, Vincenzo Galasso, Bernard Gauthier, Martin Gassebner, Nicolas Gavoille, Jacob de Haan, Jesper Johnson, Florian Léon, Frederic Lesné, Christian Lessmann, Catherine L. Mann, Marc Sangnier, Norman Schofield, Benjamin Williams, as well as participants at the U4-Proxy Challenge Competition, the European Public Choice Society meeting, the CESifo workshop on Political Economy, and the ICOPEAI conference, for their valuable comments. We are grateful to the three referees and the editor for their useful comments. We thank Gina Li and Hoa Duong for excellent research assistance.
| Funders | Funder number |
|---|---|
| Aharon Meir Center for Banking and Economic Policy | |
| European Public Choice Society | |
| Agence Nationale de la Recherche | |
| Fondation pour les Etudes et Recherches sur le Développement International | ANR-10-LABX-14-01 |
Keywords
- Regulators
- bureaucratic capital
- connected firms
- inequality of influence
- rent seeking
- revolving door
- state connections
- too-big-to-fail
