Social Capital and Trust

From microLINKS Wiki

IV. Special Topics

A. The Value Chain Approach in Conflict-Affected Contexts

B. Vulnerable Populations and the Value Chain Approach

Social capital is defined as "the ability of actors to secure benefits by virtue of membership in a social network”. ^[1] In the context of value chains, social networks can provide access to finance, tips on business opportunities, access to markets and/or employment opportunities.

Sometimes in labor and commodity markets, for example, ethnic or religious groups occupy a specific trade or occupation. ^[2] ^[1] In Indonesia the production of traditional goods like gold jewelry, clothing, shoes, tofu and ice cream are all undertaken by specific ethnic groups,^[2] and in India rag pickers come from lower/secluded castes and comprise mostly women.^[3] Labor recruitment, skill development and market information are passed through these social networks by the mechanism of social capital.

Trust exists in social networks because obligations are enforceable, not through recourse to law or violence but through the power of the norms that have been established by the social network. ^[1] Trust can benefit economic actors by

Reducing transaction costs: Transaction costs include costs incurred to search for the best price in the market, the best product, the cost of making a deal through socializing (e.g., eating or drinking tea or coffee together), developing contracts and establishing the terms of the sale. When trust is present, these costs are reduced considerably.

Lessening the potential for moral hazard: Moral hazard occurs in a transaction when a party with more information about its actions or intentions has an incentive to behave inappropriately, and the party with less information has to pay for the negative consequences of the inappropriate actions. For example, someone could purchase crop insurance and then deliberately choose not to apply the proper amount of fertilizer to the crop because the purchase and application of the fertilizer would cost more than the insurance premium. By not applying the fertilizer, the crop will fail and the insurance company will be required to pay the insurance as a result of irresponsible behavior.

Need other examples here.

[edit]

Footnotes

↑ ^1.0 ^1.1 ^1.2 Portes, A., 1998. Social capital: Its origins and applications in modern sociology. Annual Review of Sociology, 24 (1), pp. 1-24.
↑ ^2.0 ^2.1 Turner, S., 2007. Small-scale enterprise livelihoods and social capital in eastern Indonesia: Ethnic embeddedness and exclusion. The Professional Geographer, 59 (4), pp. 407-420.
↑ Venkateswaran, S. 1994. The wealth of waste: Waste pickers, solid wastes and urban development. Bonn, Germany: Friedrich-Ebert-Siftung.

[edit]