Social Network Capital, Economic Mobility and Poverty Traps

Chantarat, Sommarat and Barrett, Christopher B. (2007): Social Network Capital, Economic Mobility and Poverty Traps.

Abstract

The paper explores the role social network capital might play in facilitating poor agents’ escape from poverty traps. We model endogenous network formation among households heterogeneously endowed with both traditional and social network capital who make investment and technology choices over time in the absence of financial markets and faced with multiple production technologies featuring different fixed costs and returns. We show that social network capital can serve as either a complement to or a substitute for productive assets in facilitating some poor households’ escape from poverty. However, the voluntary nature of costly social network formation also creates both involuntary and voluntary exclusionary mechanisms that impede some poor households’ efforts to exit poverty. The ameliorative potential of social networks therefore depends fundamentally on the underlying wealth distribution in the economy. In some settings, targeted public transfers to the poor can crowd-in private resources by inducing new social links that the poor can exploit to escape from poverty.

• Item Type: MPRA Paper
• Institution: Cornell University
• Language: English
• Keywords: social network capital; endogenous network formation; poverty traps; multiple equilibria; social isolation; social exclusion; crowding-in transfer
• Subjects: I - Health, Education, and Welfare > I3 - Welfare, Well-Being, and Poverty > I32 - Measurement and Analysis of Poverty; Z - Other Special Topics > Z1 - Cultural Economics ; Economic Sociology ; Economic Anthropology > Z13 - Economic Sociology ; Economic Anthropology ; Social and Economic Stratification; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O12 - Microeconomic Analyses of Economic Development; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D85 - Network Formation and Analysis: Theory

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