Scandinavian Working Papers in Economics

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

No 04-12: Social Capital and Market Centralisation: A Two-Sector Model

Odile Poulsen () and Gert Tinggaard Svendsen ()
Additional contact information
Odile 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: We develop a two-sector model to analyze which kind of social organization generates social capital. The hypothesis is that social capital must be added as an important production factor when considering decentralization of production. Thus, market centralization processes in a capitalist society eventually may fragmentize and thus destroy social capital if the positive externality of local production and social capital is not taken into account. To our knowledge, no such attempt to model social capital has yet been undertaken and this gap or ‘missing link’ in economic debates has to be developed to grasp a more holistic understanding of the big differences in the wealth of nations or regions. The model shows that if the policy maker decides to centralize the economy, then the economy moves from an potentially stable equilibrium to an unstable one that may under certain condition even fluctuate forever.

Keywords: Social capital; market centralization; two-sector model; economic growth growth

JEL-codes: A12; C71; D23; D60; D70; Z13

25 pages, December 10, 2004

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04-12_odpgts.pdf PDF-file 

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