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Measuring Social Capital Physical capital can be measured three ways: 1. In natural units, e.g. number of tractors 2. In dollars, at market value. 3. In.

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Presentation on theme: "Measuring Social Capital Physical capital can be measured three ways: 1. In natural units, e.g. number of tractors 2. In dollars, at market value. 3. In."— Presentation transcript:

1 Measuring Social Capital Physical capital can be measured three ways: 1. In natural units, e.g. number of tractors 2. In dollars, at market value. 3. In dollars, by adding up investment and subtracting off depreciation. But social capital has no natural units, is not traded separately in the market, and is not acquired by cash investment. Moreover, there are the spillovers to worry about.

2 Using a Proxy Output = S 2 *capital.3 *labor.7 *land 2 S = social capital, unmeasureable But suppose we know that S = a*B a=some number, unknown B=number of bowling teams Then: Output = (aB) 2 *capital.3 *labor.7 *land 2

3 Proxies for Social Capital 1. How many associations people say they belong to (Glaeser, Putnam). 2. How much people say they trust each other (La Porta) 3. Aggregate data such as the number of associations in a country or the level of crime (Putnam). 4. Subjective evaluation by an expert observer (Fukuyama, De Tocqueville). 5. Experimental results (Readers Digest)

4 Surveys of Associations The General Social Survey asked 1,500-3,000 Americans how many different kinds of associations they belonged to, 1975-present. The World Values Survey asked 1,000 people in each of 40 countries a similar question in 1981-4, 1990-3, and 1995-7.

5 Surveys of Trust The World Values Survey asked: ``Generally speaking, would you say that most people can be trusted, or that you can't be too careful in dealing with people?' (But Glaeser et al. (2000) found that Harvard students who said they were trusting actually were not, though they were trustworthy.)

6 Trust in Large Organizations Rafael La Porta, Florencio Lopez-de- Silanes, Andrei Shleifer, and Robert Vishny American Economic Review, Papers and Proceedings, 87: 333-338 (May 1997)

7 Independent Variables Trust in people: % of respondents who said most people can be trusted when asked: Generally speaking, would you say that most people can be trusted or that you cant be too careful in dealing with people? Log of Gross Domestic Product per capita: measured in dollars Hierarchical religion: % of the population that is Roman Catholic, Eastern Orthodox, or Muslim.

8 Government Variables to Explain Efficiency of the judiciary: efficiency and integrity of the legal environment as it affects business, particularly foreign firms Corruption: low rating if high government officials are likely to demand special payments and illegal payments are generally expected throughout lower levels of government… Bureaucratic quality: autonomy from political pressure and strength and expertise to govern without drastic changes in policy or interruptions in government services Tax compliance: subjective assessment of the level

9 Civic Participation Variables Civic Participation: % of seven civic activities in which the respondent participated, from social-welfare services, education/art/cultural, local community affairs, conservation/environment, youth work, and voluntary health organizations Participation in professional associations: % of respondents who belonged to one

10 Social Efficiency Variables Infrastructure quality: Subjective assessment of the facilities for and ease of communication between headquarters and the operation, and within the country and of transportation Adequacy of infrastructure: Average of five scores of the extent to which business needs are met by roads, air, ports, telecommunications and power supply. Log of the infant mortality rate: Deaths before age one per thousand live births Completed high school: for the male population aged 25 and over Adequacy of educational system: the extent to which education meets the needs of a competitive economy Log inflation: log of the geometric average annual inflation using the implicit price deflator for GDP GDP growth: average annual growth in per capita GDP

11 Family vs. Strangers When the ratio of the Top 20 firms sales to GDP is regressed on Trust and on Trust in Family, the coefficient on Trust is.65 (t=4.1) and the coefficient on Trust in Family is -.56 (t=3.1). So is Trust in Family bad for big companies?

12 New LaPorta Regressions R-squared = 0.69 ---------------------------------------------------------- Judicial Efficiency Coefficient t-statistic Conf. ------------------------------------------------- ------- log GNP.33 1.42 Hierarch.Religion -.006 -0.75 Trust 7.07 2.75 1.2% Trust in Family -1.39 -0.74 Constant 8.01 1.07 R-squared = 0.50 ------------------------------------------------------------- Civic Participation Coefficient t-statistic Conf. ---------------------------------------------------------- log GNP.012 2.45 2.1% Hierarch.Religion -.0001 -0.89 Trust.097 1.83 7.9% Trust in Family -.0035 -0.17 Constant -.052 -0.59 The percentages are the levels of confidence that the effect is not zero.

13 Conclusions--Laporta The Trust variable is correlated across countries with many indicators of success. Membership in associations is also correlated with success. Religion probably does not have an effect on success besides its effect on Trust, but it may have a big effect on Trust.

14 Dependent Variable, dy/dx dy/dx y x= Education x= Home Ownership Total number of 0.2229 0.3341 memberships (OLS) (0.0046) (0.0590) Member of a 0.0260 0.0562 church group? (probit) (0.0013) (0.0153) Member of a 0.2229 0.3341 school service group? (probit) (0.0046) (0.0590) Includes controls for log(income), income missing, black,female, year of birth, age category, married, number of children, region, and log city population. The number of observations is about 18,500 for the Education regressions and 5,700 for the Home regressions. Table 4: Memberships

15 Conclusions--Glaeser People do tend to choose their memberships in associations as if they were investments. Middle-aged, rich, non-mobile people, and especially, educated ones, join the most associations. Most of the variance in joining is left unexplained, though.

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