This paper explores the idea that the distribution of wealth across social groups fundamentally affects the evolution of economic inequality. By providing microfoundations suitable for this exploration, this paper hopes to enhance our understanding of when social forces contribute to the reproduction of economic inequality. In tackling this issue, this paper offers contributions in two domains. First, it models social capital as a real capital asset with direct use and collateral values. Second, it extends the concepts of identity, alienation and polarization originally advanced by Esteban and Ray (Esteban, J.M. and Ray, D.: On the measurement of polarization, Econometrica 62(4) (1994), 819–851). This generalization permits us to consider the multiple characteristics that shape social identity, inclusion and exclusion. It also underwrites a higher-order measure of socio-economic polarization that permits us to explore the hypothesis that economic inequality is most pernicious and persistent when it is socially embedded. Holding constant the initial levels of economic polarization and wealth inequality, we show that higher socio-economic polarization increases subsequent income and wealth inequality. Far from being a distributionally neutral panacea for missing markets, social capital in this model may itself generate exclusion and deepen existing economic cleavages.
This is a preview of subscription content, log in to check access.
Buy single article
Instant access to the full article PDF.
Price includes VAT for USA
Subscribe to journal
Immediate online access to all issues from 2019. Subscription will auto renew annually.
This is the net price. Taxes to be calculated in checkout.
Akerlof, G. and Kranton, R.: Economics and identity, Quarterly Journal of Economics 115(3) (2000), 715–753.
Alesina, R. and La Ferrara, E.: Participation in heterogeneous communities, Quarterly Journal of Economics 115(3) (2000), 847–904.
Alesina, R. and Rodrik, D.: Distributive politics and economic growth, Quarterly Journal of Economics 109(2) (1994), 465–490.
Barrett, C.B.: Smallholder identities and social networks: The challenge of improving productivity and welfare, In: C.B. Barrett (ed.), The Social Economics of Poverty: On Identities, Groups, Communities and Networks, Routledge, London, 2005.
Besley, T. and Coate, S.: Group lending, repayment incentives, and social collateral, Journal of Development Economics 46(1) (1995), 1–18.
Bodenhorn, H.: The economics of identity and the endogeneity of race, Working Paper No. 9962, National Bureau of Economic Research, Massachusetts, 2003.
Bowles, S.: ‘Social Capital’ and community governance, Focus 20(3) (1999), 6–14.
Coate, S. and Ravallion, M.: Reciprocity without commitment: Characterization and performance of informal insurance arrangements, Journal of Development Economics 40 (1993), 1–24.
Coleman, J.: Social capital in the creation of human capital, American Journal of Sociology 94 (1988), S95–S120.
Coser, L.: The Functions of Social Conflict, The Free, Glencoe, 1956
de la Cadena, M.: Indigenous Mestizos: The Politics of Race and Culture in Peru, Duke University Press, Durham, 2000.
Deutsch, M.: Conflict and its resolution, In: C.G. Smith (ed.), Conflict Resolution: Contributions of the Behavioral Sciences, University of Notre Dame, Notre Dame, 1971
Duclos, J.-Y., Esteban, J. and Ray, D.: Polarization: Concepts, measurement and estimation, Econometrica 72(6) (2004), 1737–1772.
Durlauf, S.: The case ‘against’ social capital, Focus 20(3) (1999), 1–4.
Durlauf, N. and Fafchamps, M.: Social capital, In: P. Aghion and S. Durlauf (eds.), Handbook of Economic Growth, North Holland, Amsterdam, (in press).
Esteban, J.M. and Ray, D.: On the measurement of polarization, Econometrica 62(4) (1994), 819–851.
Fafchamps, M. and Minten, B.: Relationships and traders in Madagascar, Journal of Development Studies 35 (1999), 1–35.
Fafchamps, M. and Minten, B.: Returns to social network capital among traders, Oxford Economic Papers 54 (2002), 173–206.
Fang, H. and Loury, G.C.: Toward and economic theory of dysfunctional identity, In: C.B. Barrett (ed.), The Social Economics of Poverty: On Identities, Groups, Communities and Networks, Routledge, London, 2005.
Figueroa, A.: La Sociedad Sigma: Una Teoría del Desarollo Económico, Catholic University of Peru, Lima, 2003.
Figueroa, A., Altamirano, T. and Sulmont, D.: Social Exclusion and Inequality in Peru. Geneva: International Labor Organisation, 1996.
Fine, B.: The development state is dead – Long live social capital? Development and Change 30 (1999), 1–19.
Fryer, R.G.: An economic approach to cultural capital, University of Chicago and the American Bar Association, 2002, unpublished manuscript.
Ghosh, B. and Ray, D.: Co-operation in Community Interaction without Information Flows Review of Economic Studies 63(3) (1996), 491–519.
Grootaert, C.: Social Capital, Household Welfare, and Poverty in Indonesia, Policy Research Working Paper No. 2148, Social Development Department, World Bank, Washington DC, 1999.
Gurr, T.R. (ed.), Handbook of Political Conflict: Theory and Research, The Free, New York, 1980.
Hashimoto, M.: Firm-specific human capital as a shared investment, American Economic Review 36(6) (1981), 54–81.
Kuran, T.: Ethnic norms and their transformation through reputational cascades, Journal of Legal Studies 27(2) (1998), 623–659.
Laing, D.: Firm-specific human capital as an employer discipline device, Economic Inquiry 32(1) (1994), 128–137.
Loury, G.C.: Social exclusion and ethnic groups: The challenge to economics, Annual World Bank Conference on Development Economics, 1999.
Maluccio, J., Haddad, L. and May, J.: Social capital and household welfare in South Africa, 1993–98, Journal of Development Studies 36(6) (2000), 54–81.
Mogues, T.: A two-dimensional measure of polarization, Ph.D. dissertation essay, University of Wisconsin, 2005.
Narayan, D. and Pritchett, L.: Cents and sociability: Household income and social capital in rural Tanzania, Economic Development and Cultural Change 47(4) (1999), 871–897.
Oxoby, R.J.: Cognitive dissonance, status and the growth of the underclass, Economic Journal 114 (2004), 727–749.
Portes, A.: Social capital: Its origins and applications in modern sociology, Annual Review of Sociology 24 (1998), 1–24.
Putnam, R.: The prosperous community: Social capital and public life, American Prospect 4(13) (1993).
Shanin, T.: The peasantry as a political factor, Sociology Review 14 (1966), 5–27.
Stewart, F.: Horizontal Inequalities: A Neglected Dimension of Development, Annual Lectures, No.5 (2001), World Institute for Development Economics Research, Helsinki.
Solow, R.: Notes on social capital and economic performance, In: P. Dasgupta and I. Serageldin (eds.), Social Capital: A Multifaceted Perspective, World Bank, Washington DC, 2000, pp. 6–10.
Telles, E.: Self vs. Social classification of race: Inconsistency, category ambiguity, and affirmation in Brazil, Working paper, University of California Los Angeles, Los Angeles, 2002.
Udry, C.: Risk and insurance in a rural credit market: An empirical investigation of northern Nigeria, Review of Economic Studies 61(3) (1992), 495–526.
Yinger, M.: Intersecting Strands in the Theorization of Race and Ethnic Relations, In: J. Rex and D. Mason (eds.), Theories of Race and Ethnic Relations, Cambridge University Press, Cambridge, 1986, pp. 20–41.
Woolcock, M. and Narayan, D.: Social capital: Implications for development theory, research, and policy, World Bank Research Observer 15(2) (2000), 225–249.
World Bank: Social Capital: The Missing Link? In Expanding the Measure of Wealth: Indicators of Environmentally Sustainable Development, World Bank, Washington DC, 1997.
About this article
Cite this article
Mogues, T., Carter, M.R. Social capital and the reproduction of economic inequality in polarized societies. J Econ Inequal 3, 193–219 (2005). https://doi.org/10.1007/s10888-005-9001-9
- social capital
- social collateral
- socio-economic polarization.
- Z130 – Social Norms and Social Capital
- O–Economic Development, Technological Change, and Growth.