Social capital, inclusive networks, and economic performance

Empirical studies show that the relationship between social capital and economic performance is ambiguous. The paper points to the potential trade-off between the sustainability of self-enforcement and the magnitude of gains from trade in social networks as an explanation. Based on an infinitely repeated multi-player prisoners’ dilemma it is shown how self-enforcement of cooperation within a network is influenced by its inclusiveness, its communication capacity, and the complexity of the exchange setting. The paper shows that inclusive social capital can combine both low enforcement costs and high gains from trade even in a complex exchange setting.