Morck YeungFamily Control and the Rent-seeking society.pdf

First Draft: January 22nd 2002 This Draft: July 11th 2003 Very Preliminary, Comments Welcome Family Control and the Rent-Seeking Society Entrepreneurship: Theory and Practice, forthcoming, 2003 Randall Morck* and Bernard Yeung** * Stephen A. Jarislowsky Distinguished Professor of Finance, School of Business, University of Alberta, Edmonton, Alberta, Canada, T6G 2R6.Tel: (780) 492-5683. E-mail randall.morck@ualberta.ca; Research Associate, National Bureau of Economic Research, 1050 Massachusetts Avenue, Cambridge, MA 02138 USA. ** Abraham Krasnoff Professor of International Business and Professor of Economics, Stern School of Business, New York University, New York, NY 10012. Tel: (212) 998-0425. Fax: (212) 995-4221. E-mail byeung@stern.nyu.edu. We are grateful for helpful suggestions by Raffi Amit, Ramon Casadesus-Masanell, James Chrisman, Art Durnev, Curtis Eaton, Zsuzsanna Fluck, Fritz Foley, Tim Habbershon, Richard Locke, Gerald A. McDermott, Ian MacMillan, Leif Melin, Felix Oberholzer-Gee, Bill Schulze, Lloyd Stier, Mary Williams, Shaker A. Zahr, and two anonymous referees; as well as participants at the William Davidson Institute Conference on Trust, Institutions, and Globalization at the University of Michigan and the Wharton Enterprising Families Conference at the University of Pennsylvania. ABSTRACT A high level of trust within a small elite may, like a low level of trust in society at large, be a serious impediment to economic development. This is because such concentrated high trust among the elite promotes political rent seeking, known to retard growth. We propose that entrusting the governance of a country’s great corporations to a few wealthy families promotes this undesirable distribution of trust. Preliminary empirical evidence and arguments grounded in game