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Middle-Class Consensus, Social Capital and the Mechanics of Economic Development


  • Josten, Stefan Dietrich

    () (Helmut Schmidt University, Hamburg)


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.

Suggested Citation

  • Josten, Stefan Dietrich, 2005. "Middle-Class Consensus, Social Capital and the Mechanics of Economic Development," Working Paper 36/2005, Helmut Schmidt University, Hamburg.
  • Handle: RePEc:ris:vhsuwp:2005_036

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    Cited by:

    1. Florencia Torche & Luis F. Lopez-Calva, 2013. "Stability and Vulnerability of the Latin American Middle Class," Oxford Development Studies, Taylor & Francis Journals, vol. 41(4), pages 409-435, December.
    2. repec:unu:wpaper:wp2012-98 is not listed on IDEAS

    More about this item


    Social Capital; Inequality; Middle Class; Economic Growth; Distribution;

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification


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