Scandinavian Working Papers in Economics

Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

No 03-10: Rise and Decline of Social Capital

Anders Poulsen () and Gert Tinggaard Svendsen ()
Additional contact information
Anders Poulsen: Department of Economics, Aarhus School of Business, Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Gert Tinggaard Svendsen: Department of Economics, Aarhus School of Business, Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark

Abstract: In order to explain excess co-operation in the one-shot prisoner's dilemma game, we first question the standard assumption of stable and selfish preferences by introducing the concept of social capital. This analysis leads to a model that explains excess co-operation through an accumulation of social capital. We allow preferences and norms to change over time and hence endogenise them. Our results depend on individuals being able to acquire enough information to allow them to ascertain the social norm that fellow individuals subscribe to. However, our results do not depend on any assumptions about group size and no ostracism is required to generate co-operation. Our model produces three hypotheses about the emergence and stability of social capital and co-operation in society. First, neither unconditional cooperation nor universal defection is stable; second, for co-operation to be stable some individuals must be reciprocal in nature; third, we identify a 'rise and decline of social capital' which gives a cyclical pattern of co-operation in society. These findings may form the basis for future theoretical and empirical research.

Keywords: Social capital; co-operation; selfishness; reciprocity; altruism; preference dynamic; Prisoner's Dilemma

JEL-codes: A12; C71; D23; D60; D70

23 pages, January 7, 2003

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