Middle-Class Consensus, Social Capital and the Mechanics of Economic Development

Stefan Dietrich Josten ()
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Stefan Dietrich Josten: Helmut Schmidt University, Hamburg, Postal: Institut fuer Finanzwissenschaft, Fachbereich WOW, Helmut-Schmidt-, Universitaet, Universitaet der Bundeswehr Hamburg, Phone and e-mail:, Tel.: + 040 6541-2381, Fax: + 040 6541-2069

No 36/2005, Working Paper from Helmut Schmidt University, Hamburg

Abstract: This paper analyzes a heterogeneous-agents endogenous-growth model incorporating both transaction costs and social capital. An individual can either become an active part of the society's middle-class networks of trust and mutual cooperation, thus making a positive contribution to overall social capital. Alternatively, the individual can stay socially disintegrated and free-ride on the community's social capital. Due to the existence of asymmetric information, agents face a moral-hazard problem on the credit market which gives rise to transaction costs and can be alleviated by private, governmental or social governance structures. An increase in inequality and shrinking of the middle class depresses the community's social capital, which, in turn, weakens the informal social governance system and increases economy-wide transaction costs. As a result a more unequal distribution lowers the economy's growth rate.

Keywords: Social Capital; Inequality; Middle Class; Economic Growth; Distribution (search for similar items in EconPapers)
JEL-codes: O41 Z13 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2005-01
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Citations: View citations in EconPapers (4)

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