[michaelt]

To me, nepotism is a classic principal-agent problem.

Imagine you own a business, but you hire me to manage it.

If I negotiate a great salary and use it to get my kids the best education, help them get a house, fund them through unpaid internships? Not nepotism.

If you, the owner, say you want your dumb kid paid six figures for a do-nothing job? Eh, it's your money.

But if I want my dumb kid paid six figures of your money? So I decide we need a senior executive social media manager to look after our twitter account, or something? Probably you're not going to like me ripping you off.

[Viliam1234]

Yes, plus sometimes the "owner" is a group of people. Then it gets more difficult for them to coordinate against the agent.

If you take six figures out of my money, I have a strong incentive to find out. If you take six figures from a treasure chest that belongs to million people, most of them will decide it is not worth their time to investigate.

[lthornberry]

It also creates conflict of interest problems among the owners. How do you ensure that only your share of the business profit is getting siphoned off to support your kid? Does each owner get one fail-son slot?