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Community Networks and the Process of Development

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  • Kaivan Munshi

Abstract

Anyone who has spent time in a developing country knows the importance of social connections. Among their many roles, these connections help individuals land jobs, and provide them with credit and other forms of support. At first glance, it would appear that connections distort the economy by giving select individuals an unfair advantage. However, modern economics has another explanation for this phenomenon, which turns this view on its head. When markets function imperfectly, networks of socially connected individuals can form to enhance economic efficiency. For example, when the ability of new hires cannot be observed by the firm, incumbent workers will refer competent members of their community to their employers. These new hires will not let down the workers that referred them, and will work diligently, to avoid the social sanctions they would face from their network if they were caught shirking. Social connections solve information and commitment problems in this example.

Suggested Citation

  • Kaivan Munshi, 2015. "Community Networks and the Process of Development," Cambridge Working Papers in Economics 1545, Faculty of Economics, University of Cambridge.
  • Handle: RePEc:cam:camdae:1545
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    References listed on IDEAS

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    1. repec:spr:cliomt:v:12:y:2018:i:2:d:10.1007_s11698-017-0164-y is not listed on IDEAS
    2. Javier Mejia, 2018. "Social Networks and Entrepreneurship. Evidence from a Historical Episode of Industrialization," Working Papers 20180020, New York University Abu Dhabi, Department of Social Science, revised Sep 2018.
    3. Afridi, Farzana & Dhillon, Amrita & Sharma, Swati, 2015. "Social Networks and Labour Productivity: A Survey of Recent Theory and Evidence," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 50(1), pages 25-42.
    4. Gani Aldashev & Catherine Guirkinger, 2016. "Colonization and Changing Social Structure: Kazakhstan 1896-1910," Working Papers ECARES ECARES 2016-10, ULB -- Universite Libre de Bruxelles.
    5. Dagnelie, Olivier & Mayda, Anna Maria & Maystadt, Jean-François, 2019. "The labor market integration of refugees in the United States: Do entrepreneurs in the network help?," European Economic Review, Elsevier, vol. 111(C), pages 257-272.
    6. Manchin, Miriam & Orazbayev, Sultan, 2018. "Social networks and the intention to migrate," World Development, Elsevier, vol. 109(C), pages 360-374.
    7. Samuel Bazzi & Martin Fiszbein & Mesay Gebresilasse, 2017. "Frontier Culture: The Roots and Persistence of “Rugged Individualism†in the United States," Boston University - Department of Economics - Working Papers Series WP2018-004, Boston University - Department of Economics.
    8. repec:eee:deveco:v:127:y:2017:i:c:p:413-430 is not listed on IDEAS
    9. Julien Gagnon & Sanjeev Goyal, 2017. "Networks, Markets, and Inequality," American Economic Review, American Economic Association, vol. 107(1), pages 1-30, January.
    10. repec:bla:obuest:v:79:y:2017:i:3:p:291-318 is not listed on IDEAS
    11. Goyal, S., 2016. "Networks and Markets," Cambridge Working Papers in Economics 1652, Faculty of Economics, University of Cambridge.
    12. Charles H. Anderton, 2015. "The social evolution of genocide across time and geographic space: Perspectives from evolutionary game theory," Economics of Peace and Security Journal, EPS Publishing, vol. 10(2), pages 5-20, October.
    13. repec:pid:journl:v:55:y:2016:i:4:p:331-348 is not listed on IDEAS
    14. Gupta, I. & Veettil, P.C. & Speelman, S., 2018. "Caste, Technology and Social Networks," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 277048, International Association of Agricultural Economists.
    15. repec:spr:jopoec:v:31:y:2018:i:3:d:10.1007_s00148-017-0672-x is not listed on IDEAS
    16. Leticia Arroyo Abad & Blanca Sánchez-Alonso, 2018. "A city of trades: Spanish and Italian immigrants in late-nineteenth-century Buenos Aires, Argentina," Cliometrica, Springer;Cliometric Society (Association Francaise de Cliométrie), vol. 12(2), pages 343-376, May.
    17. repec:eee:wdevel:v:110:y:2018:i:c:p:422-436 is not listed on IDEAS
    18. Sanjeev Goyal, 2015. "Networks in Economics: A Perspective on the Literature," Cambridge Working Papers in Economics 1548, Faculty of Economics, University of Cambridge.

    More about this item

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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