TAILIEUCHUNG - The Impact of Social Structure on Economic Outcomes

In the public debate over these policies, however, a number of potential concerns have been raised. Some policymakers worry that higher taxes might cause affluent households to work fewer hours, to decide against investing or starting a new business, to shield their income from taxes through shelters, or even to move to another state. But the research reviewed in this study suggests that modest tax increases on affluent households are unlikely to make substantial changes in their work effort or entrepreneurship, and they are very unlikely to leave the state | Journal of Economic Perspectives Volume 19 Number 1 Winter 2005 Pages 33-50 The Impact of Social Structure on Economic Outcomes Mark Granovetter Social structure especially in the form of social networks affects economic outcomes for three main reasons. First social networks affect the flow and the quality of information. Much information is subtle nuanced and difficult to verify so actors do not believe impersonal sources and instead rely on people they know. Second social networks are an important source of reward and punishment since these are often magnified in their impact when coming from others personally known. Third trust by which I mean the confidence that others will do the right thing despite a clear balance of incentives to the contrary emerges if it does in the context of a social network. Economists have recently devoted considerable attention to the impact of social structure and networks on the economy for example see the economists chapters in Rauch and Casella 2001 and the illuminating review essay of this volume by Zuckerman 2003 as well as Dutta and Jackson 2003 and Calvo-Armengol 2004 . However I focus here on sociologists contributions. Sociologists have developed core principles about the interactions of social structure information ability to punish or reward and trust that frequently recur in their analyses of political economic and other institutions. I begin by reviewing some of these principles. Building on these I then discuss how social structures and social networks can affect economic outcomes like hiring price productivity and innovation. Social Networks and Economic Outcomes Core Principles The following four core principles are important but not meant to be exhaustive or in any sense an axiomatic treatment. Mark Granovetter is the Joan Butler Ford Professor Department of Sociology Stanford University Stanford California. His e-mail address is m anovetter@. 34 Journal of Economic Perspectives 1 Norms and Network .

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