SOCIAL CAPITAL THE AIMS OF THESE NOTES – Social capital: a controversial concept THREE KEY WORDS – Networks – Trust – Institutions

SOCIAL CAPITAL: NETWORKS What is a network Different types of network Strong and weak ties Common values Sanctions Networks as a form of capital

SOCIAL CAPITAL: NETWORKS Nan Lin definition of social capital Networks as a source of social capital Three layers of social networks – The inner layer – The intermediate layer – The outer layer The utility of each level of layer

SOCIAL CAPITAL: NETWORKS The dual nature of social capital Social capital as a private resource Social capital as a public good Relational capital System capital

SOCIAL CAPITAL AND TRUST What is trust Language technicalities Why trust matters

SOCIAL CAPITAL AND TRUST Trust and networks The sources of trust: different views Strategic trust: – Trust as a result of selfish strategies – Reputation – Repeated interactions

SOCIAL CAPITAL AND TRUST Trust as pure altruism – Trustworthiness as a characteristic of individual preferences (Ostrom) – Trust as a moral value (Huslaner) – Trust as innate in human nature (Woolcock and Radin) History and experience Trust as a complex phenomenon

SOCIAL CAPITAL AND TRUST Generalized trust Particularized trust

SOCIAL CAPITAL AND TRUST Networks, trust and civic engagement Putnam’s contributions Civic engagement as the primary source of social capital Various forms of civic engagement Civic engagement and democracy Deliberative democracies

SOCIAL CAPITAL AND INSTITUTIONS Society centred approach to social capital versus Institutions centred approach to social capital

SOCIAL CAPITAL AND INSTITUTIONS Institutions as rules of the game Institutions as political actors

SOCIAL CAPITAL AND INSTITUTIONS Institutions at work in producing social capital – Effectiveness of the court system – Constraints derived from informal rules – Fairness in the design and implementation of policies – Efficiency and skills in coordinating collective action

SOCIAL CAPITAL AND INSTITUTIONS Social capital as an input and as an output Social capital as unintended result of actions engaged for different purposes Social capital as a goal of policy Policies for social capital

SOCIAL CAPITAL AND INSTITUTIONS The dark side of social capital – When social capital produces negative externalities – When social capital harms the same members of the network – Social capital and inequality – Studies on bad social capital

SOCIAL CAPITAL AND INSTITUTIONS Types of social capital – Bonding social capital – Bridging social capital – Linking social capital Types of social capital and bad social capital

SOCIAL CAPITAL AND ECONOMICS Social capital and transaction costs Social capital and collective action Social capital and economic development

SOCIAL CAPITAL AND ECONOMICS Social capital and transaction costs – All contracts are costly – All contracts are incomplete and therefore risky – There is a trade off between cost of contracts and completeness of contracts – The more the contracts are complete the more they cost. The less are complete the less they cost

SOCIAL CAPITAL AND ECONOMICS – Social capital in the form of trust makes contracts less risky and less costly – Social capital reducing the cost of transactions make possible trades that otherwise would have not taken place or would have taken place at an higher cost

SOCIAL CAPITAL AND ECONOMICS Social capital and collective action – When we need a collective action – A typical trust situation – The essence of the collective action problem – Ways out from the impasse

SOCIAL CAPITAL AND ECONOMICS Collective action is needed to produce goods which cannot be produced or not in the necessary quantity in normal market functioning The trust situation is a version of the prisoner’s dilemma Subject A must decide whether to entrust subject B without the possibility of a constraining agreement that allows to the two parts the implementation of a joint strategy

SOCIAL CAPITAL AND ECONOMICS If A decides not to entrust B, no transactions will take place and the payoff will be nil for both parts If A decides to entrust B, B must decide whether to reciprocate or not If B reciprocates, both parts will get a payoff equal to f.

SOCIAL CAPITAL AND ECONOMICS If B decides to exploit (not to cooperate), A will get a pay off equal to –n and B a pay off equal to f + n (where f and n are both positive values) The essence of the collective action problem lies in the conflict between B’s private interest and the collective interest

SOCIAL CAPITAL AND ECONOMICS The solution of this game is that no transactions will take place in a one shot game A knows that B’s private interest is not to reciprocate. Then A knows that if he entrusts B, his pay off will be negative. Then A decides not to entrust B at the outset The pay off for the two parts will be nil

SOCIAL CAPITAL AND ECONOMICS

Possible solutions to the collective action problem: – A and B belong to the same network and are bound to cooperate an indefinite number of times in the future (context of repeated games) – B fears the sanctions of an effective court system (and A knows that)

SOCIAL CAPITAL AND ECONOMICS – B fears to lose his reputation and the informal sanctions by his group (and A knows that) – A and B live in a community with a long tradition of successful collective actions and share values of reciprocity and cooperation – A and B have an altruistic component in their preference function

SOCIAL CAPITAL AND ECONOMICS Social capital matters for economic development For national growth, linking social capital is important in the form of generalized trust Generalized trust implies confidence in institutions and a positive bias towards the citizens’ honesty

SOCIAL CAPITAL AND ECONOMICS For local development, bonding and bridging social capital matter Bonding social capital and strong ties favour social cohesion and the growth of a strong sense of identity But bonding social capital may harm local development if it leads to closure and intolerance

SOCIAL CAPITAL AND ECONOMICS Then bridging social capital and weak ties are important because they open the communities to new relationships, information and knowledge