MICRO/THEORY: Social Structure, state capacity and economic activity; Professor Sanjeev GOYAL (University of Cambridge)

Abstract

The role of groups – based on ethnicity, race, tribe, family – in shaping economic performance remains highly contested. On the one hand, we have the well-known argument that strong group identities limit the scope of cooperative behaviour among strangers. Strong group identities also circumscribe the space for broader civic association. This social capital is important for effective functioning of formal institutions and contract enforcement, an important prerequisite for large scale impersonal exchange. On the other hand, there are societies without strong group identities that do poorly and there are societies with relevant group identities that perform well. A second difficulty is that many, if not most, societies in the world contain strong group identities and the culture supporting these groups is highly persistent. This persistence in turn gives rise to a practical problem: how should societies with strong group identities organize themselves for large scale exchange? In this paper, we develop a theoretical framework – with social structure characterized by number and size of groups as well as quality of ties between them – that allows us to study, normatively and positively, the relationship between social structure, state capacity, and economic activity.