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The Missing Links

Formation and Decay of Economic Networks

James E. Rauch

Publication Year: 2007

Half of all workers are hired through personal referrals, and networks of social connections channel the flows of capital, technology, and international trade. Sociologists and economists alike recognize that economic exchange is shaped by social networks, which propagate information and facilitate trust, but each discipline brings a distinct theoretical perspective to the study of networks. Sociologists have focused on how networks shape individual behavior, economists on how individual choices shape networks. The Missing Links is a bold effort by an interdisciplinary group of scholars to synthesize sociological and economic theories of how economic networks emerge and evolve. Interweaving sophisticated theoretical models and concrete case studies, The Missing Links is both an introduction to the study of economic networks and a catalyst for further research. Economists Rachel Kranton and Deborah Minehart illustrate their field’s approach to modeling network formation, showing how manufacturers form networks of suppliers in ways that maximize profits. Exemplifying the sociological approach, Ronald Burt analyzes patterns of cooperation and peer evaluations among colleagues at a financial organization. He finds that dense connections of shared acquaintances lead to more stable reputations.  In the latter half of the book, contributors combine the insights of sociology and economics to explore a series of case studies. Ray Reagans, Ezra Zuckerman, and Bill McEvily investigate an R & D firm in which employees participate in overlapping collaborative teams, allowing the authors to disentangle the effects of network structure and individual human capital on team performance. Kaivan Munshi and Mark Rosenzweig examine how economic development and rising inequality in India are reshaping caste-based networks of mutual insurance and job referrals. Their study shows that people’s economic decisions today are shaped both by the legacy of the caste hierarchies and by the particular incentives and constraints that each individual faces in an evolving labor market. Economic globalization is forging new connections between people in distant corners of the world, while unsettling long-standing social relations. Anyone interested in understanding the opportunities and challenges of this era of rapid change will find a highly informative guide in The Missing Links.

Published by: Russell Sage Foundation

Title Page, Copyright

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pp. v-vi

About the Authors

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pp. vii-x


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pp. xi-xii

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1. Introduction: On the Formation and Decay of Interdisciplinary Boundaries

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pp. 1-16

Networks of personal connections are ubiquitous in economic life. Thirty to 60 percent of all new employment relations are estimated to be the result of personal ties (Bewley 1999). Networks are used extensively to raise capital, both by households (for example...

Part I: The Economics Approach

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2. The Study of Social Networks in Economics

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pp. 19-43

As Joel Podolny and James Rauch point out in chapter 1 of this volume, “On the Formation and Decay of Interdisciplinary Boundaries,” social networks are endemic to economic interactions. The rise of what might be called “social economics” comes very much...

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3. The Formation of Industrial-Supply Networks

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pp. 44-76

In the past two decades, the business press in the United States has been full of reports that manufacturers are reducing their supplier base, but until recently there has been no economic theory that can explain this phenomenon. Indeed, it is a puzzle: Why would a manufacturer...

Part II: The Sociology Approach

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4. The Formation of Inter-Organizational Networks

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pp. 79-99

In this chapter I will offer a literature review and some thoughts on processes that may systematically account for the formation networks among economic actors. After reviewing why sociologists (and, increasingly, economists) see networks as essential to the...

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5. Closure and Stability—Persistent Reputation and Enduring Relations Among Bankers and Analysts

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pp. 100-144

As the network around a set of people closes, it creates a competitive advantage known as social capital. The gist of the argument—found in economics (Tullock 1985; Greif 1989), political science (Putnam 1993, 2000), and sociology (Coleman 1988, 1990; Granovetter...

Part III: Melding the Economics and Sociology Approaches

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6. On Firmer Ground: The Collaborative Team as Strategic Research Site for Verifying Network-Based Social-Capital Hypotheses

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pp. 147-182

Social networks command the interest of scholars and others because these relational patterns are assumed to have causal force. In particular, network theories typically adopt the premise that such patterns often lead to individual or collective outcomes that cannot...

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7. Network Decay in Traditional Economies

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pp. 183-209

Community-based networks serve many roles in a traditional economy. In India, the setting of this study, rural caste networks have provided mutual insurance and credit to their members for centuries. More recently, these networks have been transplanted to the...

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8. Clusters and Bridges in Networks of Entrepreneurs

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pp. 210-236

The predominant sociological approach to formation of economic networks focuses on past interaction: people get to know and trust each other, especially in social settings (“embeddedness”), and are then able to share information and do business together. Economists...


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pp. 237-244

E-ISBN-13: 9781610444668
Print-ISBN-13: 9780871547095
Print-ISBN-10: 0871547090

Page Count: 256
Publication Year: 2007

OCLC Number: 654482138
MUSE Marc Record: Download for The Missing Links

Research Areas


Subject Headings

  • Economics -- Sociological aspects.
  • Social networks.
  • Business networks.
  • Sociology -- Economic aspects.
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