The Impact of Social Structure on Economic Outcomes

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. Much information is subtle, nuanced and diffi-
cult to verify, so actors do not believe impersonal sources and instead rely on
people they know. 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.