Abstract

Social structure, especially in the form of social networks, affects economic outcomes for three main reasons. First, social networks affect the flow and the quality of information. Second, social networks are an important source of reward and punishment, since these are often magnified in their impact when coming from others personally known. Third, trust, by which I mean the confidence that others will do the "right" thing despite a clear balance of incentives to the contrary, emerges, if it does, in the context of a social network. Sociologists have developed core principles about the interactions of social structure, information, ability to punish or reward, and trust that frequently recur in their analyses of political, economic and other institutions. I begin by reviewing some of these principles. Building on these, I then discuss how social structures and social networks can affect economic outcomes like hiring, price, productivity, and innovation.