Social Network Capital, Economic Mobility and Poverty Traps

Journal of Economic Inequality

61 Pages Posted: 27 Jun 2008 Last revised: 1 Sep 2014

See all articles by Sommarat Chantarat

Sommarat Chantarat

Australian National University - Crawford School of Economics and Government

Christopher B. Barrett

Cornell University - Charles H. Dyson School of Applied Economics & Management

Date Written: June 25, 2008

Abstract

This paper explores the role social network capital might play in facilitating poor agents' escape from poverty traps. We model and simulate endogenous network formation among households heterogeneously endowed with both traditional and social network capital who make investment and technology choices over time in the absence of financial markets and faced with multiple production technologies featuring different fixed costs and returns. We show that social network capital can serve as either a complement to or a substitute for productive assets in facilitating some poor households' escape from poverty. However, the voluntary nature of costly social network formation also creates both involuntary and voluntary exclusionary mechanisms that impede some poor households' exit from poverty. Through numerical simulation, we show that the ameliorative potential of social networks therefore depends fundamentally on broader socioeconomic conditions, including the underlying wealth distribution in the economy, that determine the feasibility of social interactions and the net intertemporal benefits of social network formation. In some settings, targeted public transfers to the poor can crowd-in private resources by inducing new social links that the poor can exploit to escape from poverty.

Keywords: social network capital, endogenous network formation, poverty traps, multiple equilibria, social isolation, social exclusion, crowding-in transfer

JEL Classification: D85, I32, O12, Z13

Suggested Citation

Chantarat, Sommarat and Barrett, Christopher B., Social Network Capital, Economic Mobility and Poverty Traps (June 25, 2008). Journal of Economic Inequality. Available at SSRN: https://ssrn.com/abstract=1151353 or http://dx.doi.org/10.2139/ssrn.1151353

Sommarat Chantarat

Australian National University - Crawford School of Economics and Government ( email )

7107 Coombs Building
Canberra, ACT 0200
Australia
612 6125 3756 (Phone)
612 6125 3700 (Fax)

HOME PAGE: http://www.schantarat.com

Christopher B. Barrett (Contact Author)

Cornell University - Charles H. Dyson School of Applied Economics & Management ( email )

315 Warren Hall
Ithaca, NY 14853-7801
United States
607-255-4489 (Phone)
607-255-9984 (Fax)

HOME PAGE: http://aem.cornell.edu/faculty_sites/cbb2/

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