My nephew, a recent graduate, is applying for a fellowship at CERN, and he is providing the usual letters of reference. He has in the past done some work for me (I work in the same field he is studying), and I know him quite well, professionally speaking.
If, in addition to the other letters of reference, were I to write one for him as well (explicitly noting our relationship, being relatives), would that most likely hurt or help?
Answer
I strongly advise you against writing it.
In this answer by ff524 you can read a few reasons on why your letter may be considered strongly biased. But let me add one more point, a cultural one (you never know the background of the selection committee members).
Even though you can be objective and honest in assessing your nephew's skills, and even though your letter would be just an additional one, you have to think that in some countries (e.g. Italy and Spain, but I'm sure these are not the only ones) the academic world has faced for a long time accusations of nepotism and corruption. Therefore, by many people who have grown up in such kind of culture, your letter would be probably considered as yet another case of potential nepotism.
I might be overly pessimistic, but do you really want to risk this?
Let me add a remark in view of HEITZ's comment below: When applying for a position, follow the instructions. That is, if the call requires, say, 3 letters of recommendation, your nephew should send 3 letters, not 2, not 4. Why? Because anything that is not compliant with the instructions will likely annoy a selection committee who has to assess many applicants, because they will have to decide how to handle unwanted special cases.
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