“The Impact of Social Structure on Economic Outcomes,” Mark Granovetter, 2005

JEP, 2005. Summary of sociological research that can be useful to economics. In particular, job search models are problematic because they don’t take into account endogeneity of a person’s social network. In societies where job turnover is low, few people have ties outside their workplace (even weak ties) and thus do not jump ship. In societies where job turnover is high, people will have many ties outside their firm, endogenously increasing job turnover. Further, non-anonymous trade is common – bankers give lower rates to their friends, cartels shut down new entrants not from “their class” out of a belief that the cartel will be hard to maintain with out-of-class newcomers. Finally, new goods need to be “accepted” – examples include life insurance and derivatives. It is sometimes seen that they are promoted by people who have no way to get their investment back.


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