Network structure of social capital


Published on

Presentation of an article by Ronald Burt (2000) by Mikhail Dubov of

Published in: Business, Technology

Network structure of social capital

  1. 1. The Network Structure of Social Capital Ronald Burt 2000 A presentation by Mikhail Dubov
  2. 2. Social capital metaphor <ul><li>Derived from the presumption that social context matters for individual beliefs and behavior. </li></ul><ul><li>Complement to human capital. </li></ul><ul><li>Broad agreement: a kind of capital that can create for certain individuals or groups a competitive advantage in pursuing their ends . </li></ul>
  3. 3. Network models of markets <ul><li>How do networks affect competition? </li></ul><ul><li>Information is problematic. </li></ul><ul><ul><li>Typically circulates within groups before it will circulate between groups. </li></ul></ul><ul><ul><li>Diffusion of information may take time. </li></ul></ul><ul><li>Networks affect the markets through providing competitive advantage in information exchange. </li></ul>
  4. 4. Social capital of structural holes <ul><li>Structural holes are the weak connections between different groups. </li></ul><ul><li>Holes create competitive advantage for individuals whose relationships span the holes. </li></ul><ul><li>Information benefit : Holes are gaps between nonredundant sources of information. Nonredundant contacts offer information that is more additive than overlapping. </li></ul><ul><li>Control benefit : Better-connected people benefit disproportionately from the holes by having control over third-party relationships. </li></ul>
  5. 5. Hole hypothesis <ul><li>Structural holes affect the degree of economic success of the society. </li></ul><ul><ul><li>Encourage entrepreneurship. </li></ul></ul><ul><ul><li>Improve the coordination. </li></ul></ul><ul><ul><li>Reduce costs relative to bureaucratic alternative. </li></ul></ul><ul><ul><li>Speed the adjustment to equilibrium. </li></ul></ul><ul><li>Overall, structural holes allow to increase returns to human capital. </li></ul>
  6. 6. Empirical evidence <ul><li>Empirical evidence supports the hypothesis. </li></ul><ul><ul><li>Lab experiments: resources accumulate in people with exclusive connections. </li></ul></ul><ul><ul><li>Census data: producer profit margins increase with structural holes in network of transactions. </li></ul></ul><ul><ul><li>Archival and survey data : career advantages of having a contact network rich in structural holes. </li></ul></ul><ul><li>Holes encourage learning and creativity. Still unclear on entrepreneurship. </li></ul>
  7. 7. Closure argument <ul><li>Evidence from Chicago State University: </li></ul>
  8. 8. Integration with network closure argument <ul><li>Empirical evidence suggests that dense networks do not affect performance. </li></ul><ul><ul><li>Consistent with hole hypothesis. </li></ul></ul><ul><ul><li>Contradiction with Coleman’s theory that dense networks are the source of social capital ( closure argument ). </li></ul></ul><ul><li>Rather than rejecting closure altogether we can try to integrate it into the theory. </li></ul><ul><li>Brokerage is the source of added value but closures help realize this value. </li></ul>
  9. 9. Integration: profits <ul><li>Burt ( 1992 ); Burt et al. ( 1999 ) study census data on industry profits. </li></ul><ul><li>Profit margins decrease with network constraint within the industry (internal constraint is measured as the extent to which output is spread among different producers) </li></ul><ul><li>Profit margins also decrease with constraint beyond industry (external constraint measured as the extent to which producers have few independent suppliers and customers) </li></ul>
  10. 10. Empirical evidence of integration <ul><li>Social capital matters more for managers with fewer peers. </li></ul>
  11. 11. Integration: team performance <ul><li>External constraint – aggregate network constraint in member networks beyond the team. (brokerage) </li></ul><ul><li>Internal constraint – network constraint of structural wholes within the team. (closure) </li></ul><ul><li>Managers with a network rich in social capital (low external constraint) are promoted very early, while those with mostly redundant contacts are promoted very late. </li></ul><ul><li>However, when there is poor communication and coordination within a team, the team can be expected to perform poorly . </li></ul>
  12. 12. Conclusions <ul><li>The closure argument describes how dense or hierarchical networks lower the risk associated with transaction and trust, which is associated with performance. </li></ul><ul><li>The hole argument describes how brokerage creates opportunities to add value, which determined performance. </li></ul><ul><li>The evidence (by Burt) justifies expanding the whole argument to include closure as an aspect of social capital enabling a group to act to benefit from the structural holes to which group members have access. </li></ul><ul><li>Otherwise the evidence entirely supports holes over closure. </li></ul>