Economic Analysis Of Social Capital

The paper studies an important topic that attracts more and more attention of economists: how social capital plays a role in the individual choice and economic growth. We set up some strict mathematical models of economics to explain the reasons and functional mechanisms of investing in social capital.Social capital is formed by the relationship among social agents. It can provide useful information about choices and opportunities. Its connection network can give the members more and more valuable sources. The individual reputation is set up among the members of network. Social capital also confirms the trust for each member.Our research indicates that steady stock of individual social capital will decrease when the cost of building social capital increases. If one person leaves the old network, the associated social capital will decrease to zero. The optimal solutions also prove that the highest level of social capital occurs in the middle age of an agent.Social capital provides the channel to communicate for the members. All the members can set up the reputation and follow the same social norms. The more and more density of net work will lead to higher social effectiveness of national sources to produce more goods and services.Under a framework of principle-agent, the paper studies the role of social capital in the problem of soft budget constrains. This paper sets up a three-agent game model including enterpriser, officer and banker to find that the existence of bribing leads to a lower effort of managers. We think that SBC arises due to the endogenous lack of credible commitment to liquidate a poor project instead of refinancing it in a dynamic game. In order to overcome SBC, we should adopt two kinds of policies: ex ante bureaucratic screening mechanism and more flexible finance system.The paper proves that the small deviation of social capital can incur the large change of the return of scales to affect the aggregative productivity and the industry'srevenue level.We also conclude that social capital can increase the human capital and speed the economic growth for the developing countries that are in the process of transmission from order economy to market system.