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Contacts, Social Capital and Market Institutions - A Theory of Development

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  • Dirk Bezemer

    ()

  • Uwe Dulleck

    ()

  • Paul Frijters

    ()

Abstract

This paper links two concepts of social capital to economic development. Social Capital (SC) appears in the litrature, on the individual level, as the number contacts of an agent has and his ability to raise contacts and, on the community level, as norms that help a society to function. In our economy, sold output increases with the creation of business contacts (Relational Capital as one aspect of SC). The cost of creating contacts is determined by community level social capital (CSC) and Market Institutions (MI). We argue that innovation needs the purposeful destruction of old contacts. Policies can provide disincentives to break old contacts and hence affect innovation. High levels of CSC and MI increase the contact rate, i.e. the labour costs of making RC. The former two also decrease the cost of breaking up contacts. Simulations show that our model is able to explain empirical observations regarding social capital.

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Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 0311.

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Date of creation: Jul 2003
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Handle: RePEc:vie:viennp:0311

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Cited by:
  1. Dirk J Bezemer & Uwe Dulleck & Paul Frijters, 2004. "Social Capital, Creative Destruction and Economic Growth," School of Economics and Finance Discussion Papers and Working Papers Series 186a, School of Economics and Finance, Queensland University of Technology.
  2. Bezemer, Dirk & Dulleck, Uwe & Frijters, Paul, 2005. "Social Capital, Creative Destruction and Economic Development," Research Report 05C09, University of Groningen, Research Institute SOM (Systems, Organisations and Management).

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