A growing body of research is documenting a strong connection between ‘social capital’
– the degree to which individuals are socially linked – and a large number of desirable
outcomes. Various researchers have argued that social capital causes good
government, economic growth, physical well-being and happiness itself.
But where does social capital come from? And why do individuals put time and energy
into creating formal and informal organisations? Writing in the latest issue of the
Economic Journal, Professors Edward Glaeser, David Laibson and Bruce Sacerdote
present evidence suggesting that a relatively simple analysis of investment decisionmaking
can explain a large number of ‘stylised facts’ about who has social capital. For
example, homeowners are likely to invest in social connections as well as in their
property since there are clear benefits from a better quality local community.
In the view of these researchers, social capital can be thought of as a capital stock just
like human capital (i.e., education) or physical capital. Individuals invest in capital when
they expect the return to be high relative to the cost. This unsurprising claim leads to a
number of predictions that are confirmed in the data:
?? Social capital levels, as measured by membership in organisations, rise and fall
over the life cycle as young people invest and old people draw down their
investment.
?? Social capital levels are high among people who invest in other forms of capital,
such as human capital, presumably because these people are generally forwardlooking.
?? Social capital is higher among people whose jobs require personal connections and
social skills.
?? Social capital is lower in places with high degrees of mobility or among people who
are likely to move areas.
?? Short time horizons cause all forms of investment to be less attractive.
?? Homeowners are more likely to invest in social connections as well, which comes
from the fact that house prices reflect some of the social gains from better
communities.
ENDS
Notes for Editors: ‘An Economic Approach to Social Capital’ by Central Bank
Transparency’ by Edward Glaeser, David Laibson and Bruce Sacerdote is published in
the November 2002 issue of the Economic Journal.
Glaeser and Laibson are at Harvard University; Sacerdote is at Dartmouth College.
For Further Information: contact Bruce Sacerdote via email:
Bruce.I.Sacerdote@Dartmouth.EDU; or RES Media Consultant Romesh Vaitilingam on
0117-983-9770 or 07768-661095 (email: romesh@compuserve.com).