Josten, Stefan Dietrich () (Helmut Schmidt University, Hamburg)
Abstract
This paper analyzes a heterogeneous-agents endogenous-growth model incorporating both transaction costs and social capital. An individual can either become an active part of the society's middle-class networks of trust and mutual cooperation, thus making a positive contribution to overall social capital. Alternatively, the individual can stay socially disintegrated and free-ride on the community's social capital. Due to the existence of asymmetric information, agents face a moral-hazard problem on the credit market which gives rise to transaction costs and can be alleviated by private, governmental or social governance structures. An increase in inequality and shrinking of the middle class depresses the community's social capital, which, in turn, weakens the informal social governance system and increases economy-wide transaction costs. As a result a more unequal distribution lowers the economy's growth rate.
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Publisher Info
Paper provided by Helmut Schmidt University, Hamburg in its series Working Paper with number
36/2005.
Find related papers by JEL classification: O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models Z13 - Other Special Topics - - Cultural Economics - - - Social Norms and Social Capital; Social Networks Economic Anthropology