Abstract
Our purpose here is to engage in a cross-disciplinary discussion between Austrian economics and social network theory. In particular, we ask what role social networks play in the extended order in regard to both individual discovery and whether social networks can be the source of widespread unintended cooperation among individuals unknown to one another. Although Austrians have examined the function that market prices play in generating social cooperation, such discussions tend to steer clear of non-priced environments, such as interaction within social networks. We seek to explore this gap. While we acknowledge that non-price information feedback mechanisms such as status and reputation lack the calculability so crucial to market coordination, we argue that they can nonetheless mimic other important qualities of market prices and generate widespread unintended social cooperation among people unknown to one another. After a general discussion, we apply these ideas to online philanthropic communities.
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Notes
Although the logic of the abstract analysis can help both social network theorists and practitioners hit upon guiding principles, the evidence drawn from actual social networks suggests that learning what one’s best strategy might be is no obvious task. In his empirical analysis of corporate managers, Burt found that although some social networking strategies proved far more effective in gaining early promotion, there was no systematic selection in favor of such strategies in the aggregate. This result raises the question of what keeps people from adopting the strategy best suited to their situation. Is it that they are operating from the wrong mental construct of what their best strategy is? Or is it that they know what strategy is best, but are unwilling or unable to pursue such networks (perhaps because of personality type or strong preferences for an alternative kind of network)? Or it could be that they have selected the appropriate network given their goals; career advancement is not always the top priority.
Burt correctly observes that one might want to possess more than one contact within a network so as to avoid the moral hazard problems associated with exclusive bargaining relationships. Our point is to observe further the need for redundant ties so as to address the knowledge problems exclusive relationships may present.
Between 2004 and 2007, the number of microfinance organizations in the MIX network has increased from approximately 150 to 1,000 and continues to grow.
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Acknowledgment
We would like to thank Charles Westerberg, Virgil Storr, Robert Garnett, Paul Lewis, Christopher Coyne, Peter Leeson, and Peter Boettke for their valuable insights in the development of this paper. The usual caveat applies.
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Chamlee-Wright, E., Myers, J.A. Discovery and social learning in non-priced environments: An Austrian view of social network theory. Rev Austrian Econ 21, 151–166 (2008). https://doi.org/10.1007/s11138-007-0039-8
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DOI: https://doi.org/10.1007/s11138-007-0039-8