Sanjeev Goyal (Cambridge)
"Social Structure, the State, and Economic Performance"
Abstract: The role of kin-based groups in its relation to economic performance remains highly contested. On the one hand, there is the view that the dominance of family and kin-based groups is an impediment to the evolution of broader circles of trust. On the other hand, there are well know examples of societies centred on nuclear families and weak kin groups that are economic and social failures. Even more tellingly, there are prominent instances of societies with strong family and kin-based groups that have enjoyed rapid economic growth. Thus kin-based groups have a rich and varied relationship with economic performance. We develop a theoretical framework that helps us identify principles to understand this relationship. The key ingredients of this model are social structure (kin-based groups and horizontal social linkages across groups), economic exchange (within and across groups), and the formal institutions of the state. Kin-based exchange is constrained by the size of the group but it is frictionless. Exchange outside the group has the potential to be more valuable but it entails transaction costs of different types. The magnitude of these costs depends on the effectiveness of the state and formal institutions and on generalized trust. Generalized trust in turn is correlated with the quality of civic community and is measured by the strength of ties across kin-based groups in a society. A larger state and greater civic community both lower frictions. We study the problem of a utilitarian planner who chooses tax rates and size of the state. This sets the stage for an examination of states in democratic societies and under dictatorships. Our analysis illuminates the ways in which the social structure shapes the relative magnitude of group based and impersonal exchange and the size and the nature of the state, and how that togethers determine the economic performance of a society.
When: Friday 21st May 2021 - 2:00pm
Where:
Reading Group: Networks Webinar