The impact of social structure on economic outcomes

Some extracts from The impact of social structure on economic outcomes.

4 core principles:

1) Norms and Network Density. ... the denser a network, the more unique paths along which information, ideas and influence can travel between any two nodes. Thus, greater density makes ideas about proper behavior more likely to be encountered repeatedly, discussed and fixed; it also renders deviance from resulting norms harder to hide and, thus, more likely to be punished. ... larger groups will have lower network density because people have cognitive, emotional, spatial and temporal limits on how many social ties they can sustain.

2) The Strength of Weak Ties. More novel information flows to individuals through weak than through strong ties. Because our close friends tend to move in the same circles that we do, the information they receive overlaps considerably with what we already know. ...This is so even though close friends may be more interested than acquaintances in helping us; social structure can dominate motivation. This is one aspect of what I have called “the strength of weak ties” (Granovetter, 1973, 1983). ... if cliques are connected to one another, it is mainly by weak ties. This implies that such ties determine the extent of information diffusion in large-scale social structures. One outcome is that in scientific fields, new information and ideas are more efficiently diffused through weak ties.

3) The Importance of “Structural Holes.” Burt (1992) extended and reformulated the “weak ties” argument by emphasizing that ... the strategic advantage that may be enjoyed by individuals with ties into multiple networks that are largely separated from one another. Insofar as they constitute the only route through which information or other resources may flow from one network sector to another, they can be said to exploit “structural holes” in the network. ... One reason resources may be unconnected is that they reside in separated networks of individuals or transactions. Thus, the actor who sits astride structural holes in networks (as described in Burt, 1992) is well placed to innovate.

Prospective employers and employees prefer to learn about one another from personal sources whose information they trust. This is an example of what has been called “social capital” (Lin, 2001). ... for goods where assessment is difficult, such as used cars, legal advice and home repairs, one-quarter to one-half of purchases in the United States are made through personal networks.

Studies of peasant markets often suggest that “clientelization,” defined as dealing exclusively with known buyers and sellers, raises prices above their competitive level

Social relations are also closely linked to productivity. Economic models attribute productivity to personal traits, modifiable by learning. But one’s position in a social group can also be a central influence on productivity, for several reasons. One is that many tasks cannot be accomplished without serious cooperation from
others; another is that many tasks are too complex and subtle to be done “by the book” (which is why the “rulebook slowdown” is a potent labor weapon) and require the exercise of “tacit knowledge” appropriable only through interaction with knowledgeable others.

“loyalty systems”—attempts to elicit cooperation from workers deriving not only from incentives but also from identification with the firm or with some set of individuals that encourages high standards and productivity.