Transcript 1.tucson

SOCIAL
CAPITAL
What is Social Capital?
By analogy with notions of
physical capital and human
capital--tools and training that
enhance individual productivity-"social capital" refers to features
of social organization such as
networks, norms, and social trust
that facilitate coordination and
cooperation for mutual benefit.
(Putnam, “Bowling Alone”, 1995)
Hour 1: Getting a Grip on the Concept
Introduction
How Trust and Networks relate:
Prisoner's Dilemma and Coordination Games
Is the term "Capital" appropriate?
Production Functions
Technology, Government, Human Capital
Social Capital vs. Capital
Hour 2: Testing the Importance of Social Capital
Measuring Social Capital
La Porta et al.: Trust Levels in Different Nations
Glaeser et al.: Why Individuals Join Associations
Hour 3: Families, Norms, and Social Outputs
Families as part of social capital
Social norms and how they are enforced
Social outputs
Practice with linear regression
Applying Putnam's social capital index to
state data
Trust
• Nucor cuts its workers, non-unionized to a
3-day workweek during the 1982
recession. When the recession ends, morale
is excellent.
• Toyota allows any of its workers to pull a
cord and stop the assembly line.
• I leave a tip at the restaurant, its size
varying depending on the service.
• A department store allows customers to
return clothing they regret buying, no
questions asked.
• Goldman Sachs pays much of its
employees’ salaries as bonuses at the
option of the company.
• Public restrooms supply toilet paper-which nobody steals.
The Capital Metaphor
Edmund Burke, to the French Revolutionaries:
``...the people of England well know that the idea of
inheritance furnishes a sure principle of
conservation and a sure principle of transmission,
without at all excluding a principle of improvement.
It leaves acquisition free, but it secures what it
acquires.... You had all these advantages in your
ancient states, but you chose to act as if you had
never been molded into civil society and had
everything to begin anew. You began ill, because
you began by despising everything that belonged to
you. You set up your trade without a capital.''
De Tocqueville, too, was reacting to the French
Revolution when he wrote Democracy in America-as well as in The Old Regime. Civil society
underlies government and the economy. And civil
society involves trust and associations.
Bowling Alone
• From 1980 to 1993, the number of bowlers in
America grew 10 percent, but league bowling
declined 40 percent.
• Nearly 80 million Americans went bowling at
least once during 1993, about a third more
than voted in 1994.
• Those who bowl in leagues consumer 3 times
as much beer and pizza per person.
• What does this mean for civil society-- for
government, the economy, crime, and
illegitimacy?
• Robert Putnam:
• ``Bowling Alone: America's Declining Social
Capital,'' Journal of Democracy, 1995
• Bowling Alone: The Collapse and Revival of
American Community, 2000
Social Capital as
Information Transmission
Both horizontal and vertical
institutions help transmit information.
The bowlers learn about possible
jobs, clients, school problems, etc.
Social Capital as Trust
Another part of social capital is
trust: being able to rely on someone
else without government sanctions for
misbehavior.
Game theory is a useful way to view
this. There are two relevant games:
1. The Prisoner’s Dilemma
2. The Coordination Game
Here goes the game theory material, form
tex files.
The Production Function
Output= f(capital, labor, land)
Output = 5*capital.3 *labor .7 *land2
This function could be for an
individual business, an industry, or a
country.
The output could be bushels of corn,
dollars of GDP, or prevention of
crime.
Why do Production
Functions Differ?
India and the United States would produce
different outputs even if they used the same
capital, land, and labor.
OutputUS = 9*capital.3 *labor .7 *land2
OutputIND = 4*capital.3 *labor .7 *land2
Output = X2*capital.3 *labor .7 *land2
1. Technology
2. Government
3. Human capital
4. Social capital
Human Capital
Education is like capital investment.
It defers present consumption for future
gain.
It explains much of why labor differs in
productivity.
In modern economies, a large amount of
wages is return to education.
This is an explanation for why Germany and
Japan recovered so well from World War II
(and why Japan grew so fast even before the
war).
Social Capital
Are trust, associations, and institutions
analogous to physical and human capital?
Like capital, they are durable and can rise
and fall over time.
However:
1. Often social capital is a by-product, rather
than a costly output.
2. Social capital often usually shows “use
appreciation”, not depreciation.
3. Social capital usually cannot be sold, only
rented in conjunction with labor.
4. When a person increases his social
capital, that has spillovers onto other
people.
A Counterexample
What about a business’s organization chart?
1. It requires time and labor to build a good
organization.
2. It grows obsolete over time.
3. The company can be sold, and its main
asset may be the organization, not its
physical assets or its particular employees.
4. There are no “real” spillovers outside of
the company.