Bad nepotism promotes people above their abilities by virtue of connections, and it erodes rather than enhances economic productivity.
But there is even a larger cost. If the rich leverage economic power to gain political power they can also skew broader public policy choices—from the tax system to the education system—to the benefit of their offspring. This will surely start eroding the belief that labour markets are fair, and that anyone can aspire to the top.
Sometimes I wonder where would I be if I had joined my dad's architectural consulting firm in Panvel. Would I be better off? Then I think to myself, probably we would've ended up killing each other first; at least now we are on amicable terms.
[Link to Daddy put you in the top 1%]