Favoritism and reverse discrimination

We analyze the inefficiency that may arise in the form of reverse discrimination in the presence of favoritism or nepotism. Favoritism is typically associated with inefficient transfers to the core support of the incumbent government. But inefficiency that is opposite in nature may also arise through the electoral process in a political environment where favoritism is pervasive. We show that if the policy maker is sufficiently office seeking, a socially efficient action may never be taken if it yields benefits to his core support due to reputational concerns. Hence, the core support of the incumbent may fare worse than other groups. We also consider the implications of policies such as anti-nepotism laws or term limits in the presence of favoritism.