This document summarizes Michael Davern's proposed research agenda for applying social network analysis to economic sociology. It begins by outlining four key components of social networks: 1) structural, 2) resource, 3) normative, and 4) dynamic. It then reviews existing literature in economic sociology that utilizes social networks, such as studies of job searching and interlocking directorships. Finally, it proposes new areas for social networks to provide insights into socioeconomic behavior, such as combining the structural, resource, and normative dimensions over time. The overall aim is to demonstrate how social network analysis can create a more complete social science by integrating sociological and economic theories.

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Social Networks and Economic Sociology: A Proposed Research Agenda for a More Complete
Social Science
Author(s): Michael Davern
Source: The American Journal of Economics and Sociology, Vol. 56, No. 3 (Jul., 1997), pp. 287-
302
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2. SocialNetworksandEconomicSociology:
AProposedResearchAgendaFora
MoreCompleteSocialScience
By MichaelDavem*
ABsTRACT.The social networkmetaphoris widely used by sociologiststo study
socioeconomic behaviorandprocesses.Theuse of socialnetworksgenerallytakes
placewithintheranksof sociology.However,amorecompletesocialsciencewould
resultby combiningwork being done on social networkswithin sociology with
mainlineeconomic theory.The insightsfromsuch a researchagendawill help us
betterunderstandsocioeconomic behavior.Withthis in mind, the main objective
of this paperis to demonstratethe utilityof the networkmetaphorto economists.
Thisobjectivewill be accomplishedthroughdevelopingfourbasiccomponentsof
social networks,and using them to navigatethroughthe existingliteraturein eco-
nomic sociology. Furthermore,topics forfutureresearchin which social networks
can provide contributionsto the explanationof socioeconomic behaviorare ex-
ploredas well.
Introduction
ECONOMICSOCIOLOGYcoversa largeamountof grayareabetween the disciplinesof
economics and sociology (Swedberg 1990). This gray area is being explored by
"economicsociologists"fromboth disciplines.Unfortunately,communicationbe-
tween the economists and sociologists concerningtheirexplorationhas not been
substantial(Baronand Hannan 1994;Davernand Eitzen 1995).This paper is an
attempt to communicate the utility of a sociological approach to economic
sociology.
Recentsociologicalworkin the fieldof economic sociology has emphasizedthe
importanceof a socialnetworkapproachforunderstandingsocioeconomicbehav-
*[MichaelDavemisaPh.D.candidateattheUniversityofNotreDame.Heiscurrentlyworkingon
hisdissertationentitled:StructuralHolesandLaborMarketMobility:UsingTelevisionStationManagers
toTelltheStory.Pleasedirectallcorrespondenceto:MichaelDavern,UniversityofNotreDame,Notre
Dame,IN46556.OrE-mail:Davem.1@nd.edu.]TheauthorwishestothankLaurenceS.Mossforhis
constructivecritique.Furthermore,the authorwouldliketo thankJesperSorensen,TeresaGhilar-
ducci,andDavidBrunsmaforreadingandcommentingonearlierdraftsofthispaper.Finally,Iwould
liketo thankDawnDietmanforhelpingmewiththegraphics.Allremainingerrorsarethefaultof
theauthoronly.
AmericanJournal of Economics and Sociology, Vol. 56, No. 3 (July, 1997).
? 1997 AmericanJournal of Economics and Sociology, Inc.
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3. 288 AmericanJournal of Economicsand Sociology
ior. The networkmetaphorin economic sociology emerged fromthe structuralist
tradition',and it is presentlymanifestedin a wide varietyof sociologicalconcepts.
For example, in the study of formalorganizationsand job mobilityRonaldBurt
(1992)hasused the concept of "structuralholes,"inthe studyof labormarketsNan
Lin(1982;1990)has used the concept of "socialresources,"and EndreSik(1994a;
b) hasusedtheconceptof "networkcapital"toexplainthemacroeconomicchanges
associatedwiththe transitioninEasternEuropefromstatesocialismto aneconomic
system that is more relianton marketmechanisms.Otherpopularconcepts that
make use of the social network metaphor include "interlockingdirectorships"
(Useem 1984;Zeitlin1974), "socialcapital"(Coleman1988), the "informalecon-
omy"(Lomnitz1988;1977),"embeddedness"(Granovetter1985),andthe "strength
of weak ties"(Granovetter1973).Allof these sociologicaltermssharea socialnet-
work component,and togetherthisgroupof wide rangingtheoreticalabstractions
provide sociologists with powerful tools for analyzingthe economy (Baronand
Hannan1994).
Network-basedconcepts,while influentialin particularsubjectareas(suchas the
studyof formalorganizationsor labormarkets),arenot properlyintegratedinto a
theory that bridges the varyingareas of specialization(Emirbayerand Goodwin
1994).Therefore,the firstgoal of thispaperis to develop fourbasiccategoriesthat
forma foundationforsocialnetworksby synthesizingthe theoreticalcontentof the
concepts that use the network metaphor.These four categorieswill be used to
navigatethroughthe existingliteratureandto demonstratethe utilityof socialnet-
worksforstudyingsocioeconomicphenomena.Thiswillbe done intwo parts.First
the researchthathas alreadybeen done in the field of economic sociology will be
summarizedand second, new areasfor the applicationof social networksin the
studyof socioeconomic phenomenonwill be discussed.
II
Four Categories for Social Networks
THEFUNDAMENTALCOMPONENTSof a networkare nodes and connections.In order
to develop a networkmetaphor,sociology has replacedthe nodes with actorsand
the connectionswithsocialtiesorbonds.Thus,a socialnetworkconsistsof a series
of directandindirecttiesfromone actorto acollectionof others,whetherthecentral
actoris an individualperson or an aggregationof individuals(e.g., a formalorga-
nization).A networktie is defined as a relationor social bond between two inter-
actingactors.
Thesocialnetworkimageis one way to conceptualizesocialstructureand,there-
fore, social networkswill be used synonymouslywith social structurethroughout
this paper. The social network conception of social structureis fundamentallya
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4. SocialNetworksand EconomicSociology 289
relation-centeredapproach.The relationsin the structureare the social ties con-
necting actors.Furthermore,by positingthatrelationsamong social actorsforma
social structure,networkanalysisrestson a flexible conception of structure.The
flexibilitycomes fromthefactthattiesareformedand/orbrokenthesocialstructure
changes.Thussocial networksareflexibleand dynamicbecause of the frequency
of tie formationanddissolution.
The fourbasic componentsof social networksare as follows:(1) the structural
component(2), the resourcecomponent,(3) the normativecomponent,and(4) the
dynamic component. The structuralaspect refersto the geometricshape of the
actorsandties withina networkas well as the strengthof the ties.Thisis the basic
buildingblockof networkanalysis.The resourcefocus is on thedistributionwithin
networksof variouscharacteristicsthatdifferentiateamong actorswithinsociety.
Examplesof these characteristicsare ability,knowledge, ethnicity,estate,gender,
and class. The normativeaspect of networksrefersto the normsand overt rules
thatinfluencethe behaviorof actorswithinvaryingnetworks(e.g., the prevalence
of reciprocity,or the level of trustamong actorswithinthe network,and the overt
rules governingbehavior).The normativecomponent is also concernedwith the
type of tie, which is determinedby takinginto considerationthe social rolescon-
nected througha tie (e.g., is the tie between a worker and employer, between
friends,between kin,etc.). The dynamiccomponenttakesintoaccounttheoppor-
tunitiesand constraintsfor tie formationand the ever evolving networkstructure.
Networksare constantlychanging and any network model must describe these
changes. Togetherthe structural,resource,normative,and dynamiccomponents
formthe basisof social networkresearch.
TheStructuralComponent
The structuralcomponenttakesthe configurationof the actorsand ties withina
networkas itsmainconcern.Allactorsaretreatedas nodes thatareaffectedby the
configurationof the socialties andotheractorsin the network.Thearrangementof
the parts(actorsand ties) controlsa substantialamountof the variancein the out-
come of socioeconomicbehavior.Imagineagroupof actorsconnectedbylinesthat
representsocial ties fromone actorto another.If three actorsare all tied to one
anotherwithina network,thenthe structuretakeson a triangularshape.But,ifone
personconnectstheothertwo withina network,thenthestructureis a straightline.
These differentshapes, or network structures,have varyingsocial consequences
accordingto thenetworkexchangetheory.(CookandWhitmeyer1992;Markovsky,
Ridgewayand Lawler1993).Forinstance,in the networkstructureconsistingof a
straightline, the one personconnectingthe othertwo has a more "powerful"net-
work position relativeto the others.And withinthe triangularstructure,no actor
has a "power"advantage.Powerdifferentialscreatedby networkstructurecan ac-
count for the differencesin exchange among actors.Thus, justby knowing the
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5. 290 AmericanJournalof Economicsand Sociology
Figure 1:
Example Network Structure
0 = Actors
- = Network Ties
configurationof the actorsand social ties, well-substantiatedhypotheses can be
forwardedaboutthe social and economic processesoccurringwithinthe network.
Also underthe domainof the structuralapproachfallsthe strengthof the social
tie or bond between two actors.The strengthof a tie can be measuredaccording
to a varietyof criteria,such as the length of time two actorsspend together,the
amount of emotional intensitybetween two actors,the amountof business two
actorsdo together,andthe amountof an actor's"like"or "dislike"forothers(Gra-
novetter1974;Marsdenand Campbell1984;Wegener 1991).Thus,the configura-
tional, or structural,aspect of social networks takes into account both the tie's
"strength",andthe geometryof the connections.These structuralconcernsareex-
emplifiedby the structure-conduct-performancetheorywithinindustrial-organiza-
tionaleconomics2,in theworkof RonaldBurt(1992),MarkGranovetter(1973),and
by networkexchange theory(Bonacichand Bienenstock1995;Cook 1990;Cook
and Whitmeyer1992;Markovsky,Willer,and Patton1988;Markovskyet al. 1993;
WilierandAnderson1981;Willer1987).
ResourceComponent
Resourcesare somethingthatactorscan turnto for help or supportin orderto
achieve theirgoals. Theresourcecomponentof socialnetworkstakesintoaccount
the actor'sresourcesthatdifferentiateamong people in similarstructuralnetwork
positions. Examplesof actorresourcesare ability,knowledge, class, estate, race,
prestige,andgender3.Theseresourcescanbe bothindividualcharacteristicsaswell
as networkcharacteristics.Throughanalyzingtheirdistributionwithina network,a
researchercan determinethe amountof non-structuralresourcesaccessible to an
individualthroughtheirnetworkties.Forexample,apersonwithseveralhigh-status
individualswithinhis orhernetworkhasa largeamountof resources.Ontheother
hand,a person connected only with low-statuspeople has fewer resources.Thus,
resourcesarea functionof the actor'sown resourcesas well as the resourcesof all
of his or hercontacts.Itis assumedthataccessto these resourcesprovidesanactor
withbetterodds of obtainingafavorableoutcomeinsocioeconomicprocesses(e.g.,
findinga job). Examplesof social networkanalysisthatuse the resourcescompo-
nentareNanLin's(1982;1990)researchon jobsearching,Stanton-SalazarandDom-
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6. Social Networks and Economic Sociology 291
Figure 2:
Example Network Structure
0 = Actors
- = Network Ties ? ? ?
busch's(1995)studyof education,andfinally,studiesof interlockingdirectorships
(Useem 1984;Zeitlin1974).
TheNormativeComponent
The normativecomponent of social networksconsists of the norms,regulatory
rules,and effectivesanctionsthatgovernthe behaviorof actorswithina particular
network(Coleman1988;1990).4These norms,rules,andsanctionscan facilitateor
hinderprocessesof exchange.Importantnormativeconsiderationsincludethelevel
of trustamong membersof a particularnetwork,the regulatoryrulesgoverninga
particularnetwork,and the effectivesanctionsforenforcingthe ruleswithina par-
ticularnetwork. Variationsin normativecharacteristicscan have socioeconomic
consequences, for example certainsegments of society may be able to perform
functionsmoreefficientlythanothersegments.
A good example of the importanceof the normativecomponent of social net-
works is given by Coleman(1988) in his discussion of a diamond market.This
particulardiamondmarketis controlledby a close-knitgroup of Jewish business-
men.Withinthisgroupthelevelof trustis extremelyhigh,whichallowsforefficient
functioningof the marketbecause buyersare allowed to peruse a particularmer-
chant'smerchandisewithout supervision.The buyer could easily switch the dia-
monds with ones of lower quality,but the buyer does not do so because of the
strongbond of trustwithinthe communitymakingup this particularmarket.Ifan
individualbuyerwere caughtswitchingthe loaned diamonds,the cost would be
ostracismby the community.Insuch a tight-knitcommunityostracismwould be a
very high priceto pay for immediategratification(Coleman1988).The normative
regulatoryrulesandsanctionsthatgovernnetworksandmarketscanhaveaneffect
on economic transactions.If the diamondmarketdid not functionin this way the
exchange of diamondsbetween buyersandsellerswould be less efficient.
Furthermore,the normsregardingthe relationshipbetween types of bonds be-
tween actorsis a normativecharacteristicsof socialnetworks.Whethera tie is kin-
related,work-related,entertainment-related,orsome combinationof the above has
implicationsforsocial andeconomic behavior.Allof these roles have a set of nor-
mative expectationsand rules associatedwith them. Forexample the normative
dimensions of the dyadic bond between a fatherand a daughtercan providean
explanationof the behaviorassociatedwiththeirinteraction.Furthermore,thenor-
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7. 292 AmericanJournal of Economicsand Sociology
mativerulesandexpectationsconcerningthe employee andemployerrelationship
have implicationsfor the two actor'ssocial and economic actions.Thus,the nor-
mativedimensionassociatedwith variousties among actorshas behavioralimpli-
cationsthatshould be takeninto consideration.
TheDynamic Component
Thedynamiccomponentof socialnetworksis the least-studiedareaandone that
could provide great insightinto the socioeconomic processes. Networkschange
because ties aredissolvedand createdover time.Studyingthe structural,resource,
and normativechanges in social networkswould produce insightinto socioeco-
nomic processes. However, there are only a few studies thatobserve change in
networksovertime (e.g. HallinanandWilliams1987;SocialNetworks1997).While
these studiesare a good start,they largelyconcentrateon only one dimensionof
social networks.A more complete study of the changes in networkstructure,re-
sources, and normativedimensionswill help us betterunderstandsocioeconomic
behavioras a dynamicprocess.
III
Social Networks and the Economy
THEFOURCOMPONENTSof socialnetworksareoftencombinedin researchon partic-
ularsubjectsin economic sociology. Threeillustrationsof these combinationswill
be explored in some detail.The firstis the study of resourceand structuralcom-
ponents of social networksin the job searchliterature.The second example con-
cernsthe concept of networkcapital,which combinesthe structural,andthe nor-
mativecomponents of social networks.And, finally,the thirdexample combines
normativeand structuralelementswithinexchange networktheory.
Structuraland resourcecomponents are combined in labormarketresearchon
job searches.The job searchliteraturedistinguishesbetween informaland formal
meansof search.Formalmeansof jobsearchincludeadvertisements,"helpwanted"
signs, and directapplicationto a company.Informalmeans of job search,on the
otherhand, involve the use of social networkties. Examplesof gainingaccess to
jobsthroughsocialtiesarejobreferrals,"inside"information,orbeinghireddirectly
by a friend.Thestructuralandresourceaspectsof networksareusedbythevarying
theorieson the use of informalmeansin thejobsearch.One theoryis the "strength
of weak ties" (Granovetter1973; 1994), and it posits that weak ties provide an
efficientmechanismforobtainingjobinformation.Thusin thetermsIhavelaidout
in this paper,the structuralnetworkcharacteristicof strengthof tie is importantto
job searches.Furthermore,Nan Lin(1981a;b) has expanded the weak tie idea to
include a resourcedimension.Lin'sresearchhas demonstratedthe importanceof
networkresourcesfor explainingwhy an individualis able to obtaina betterjob.
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8. SocialNetworksand EconomicSociology 293
Thusin jobsearchesthe structuralandresourcecomponentsof networkscombine
to produce a wide varietyof theoreticaldevelopment relevantto socioeconomic
analysis(forreviewsee Granovetter1994).
EndreSik(1994a;b) in his analysisof the changingeconomic systemof Eastern
Europeuses theconceptof "networkcapital".Thisconceptcombinesthestructural,
andthenormativecomponentsof socialnetworks.Networkcapitalis,basically,the
amountof favorsan individualcan callin atanygiven time.People buildup these
favorsthroughtheirstructuralpositionwithinsome typeof socialorganization(the
social organizationcould be a society,an economy, a family,a corporation,a gov-
ernment,etc.). Withina social organizationcertainnormsregulatethe exchangeof
these favors.Somesocietiesororganizationsstrictlyenforcethenormof reciprocity
and othersdo not. In those where reciprocityis strictlyenforced,the transaction
costs of exchangingfavorsarelower thanthose where such normsarenot strictly
enforced.Therefore,both normativeand structuraldimensionsplay a role in ob-
tainingandbeing able to use networkcapital.
Sik(1994a;b) usestheconceptof networkcapitaltodescribeproblemsassociated
with the change froma command-basedto a market-basedeconomy in the coun-
triesof EasternEurope.Accordingto Sik,investmentin networkcapital,resulting
fromthe predominanceof centralizedeconomic authorityin EasternEurope,is so
largethatotherformsof investment(e.g., physicalorhumancapital)areovershad-
owed. Networkcapitaldoes not havean easilyquantifiablevalue,andis,therefore,
not easily transferredfromone person to another(unlike financialcapitalfor ex-
ample).Furthermore,changeawayfromthepresentsituationinEasternEuropewill
not occur quickly because those people holding a large investmentin network
capitaland the power thatderivesfromit, are not willingto give up theirinvest-
ments.Therefore,thetransitionto aWesternstylemarketeconomywillnothappen
quickly,if atall, in EasternEurope.
The last example is found withinthe exchange networktraditionof sociology.
Markovsky,Willer,andPatton(1988)demonstratedthe importanceof bothvarying
network structuresand the normativerules governing exchange between actors
withindifferentexperimentalnetworks."Ourfindingsindicatethatbyonlyfocusing
on the effectsof networksperse,alternativenetworktheoriesdo not recognizethat
power and resourcedistributionsdepend as much on prevailingexchange condi-
tions [i.e., normativeconditions]as they do on configurationsof positionsand re-
lations[i.e., structuralcharacteristics](p. 232)."Thusboth the structuralconfigura-
tions of the networksareimportantas well as the prevailingnormativeconditions
forexchange in determiningthe outcomesof socioeconomic behavior.
These threeexamples are meantto illustratehow the differentcombinationsof
the componentsof social networksareuseful to sociologistsforexplainingsocio-
economic behavior.These examples are drawn from a range of sociological re-
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9. 294 American Journal of Economics and Sociology
search.Sik's(1994a;b) concept of "networkcapital"is used in macrostudies of
economicchangein EasternEurope.Granovetter(1973;1994)andLin(1982;1990)
used componentsof social networksto describethe middle-rangephenomenaof
a job search.AndfinallyMarkovsky,Willer,and Patton(1988)presenta microuse
for networkcomponents in describingexchange relationswithinhighlyrestricted
socialnetworks.Thussocialnetworkshavealreadybeen importantto these as well
as manyotherareaswithineconomic sociology.
IV
Future Research
THEFOLLOWINGexampleswillfurtherdemonstratetheimportanceofsocialnetworks
to the studyof socioeconomic phenomenon.The firstexampleconcernsthe wage
relationshipbetween an employee and an employer,which is a normativecom-
ponent of social networksbecause it is one possible tie thatconnectssocialactors
in a normativelyprescribedsituation.Furthermoretheexamplewillmakeextensive
use of structuralcharacteristicsof networksas they have been studiedin the field
of sociology.
WhatCanSocialNetworksAddtoEconomicDebatesConcerningWages?
Accordingto neoclassicaleconomicwage theory,thevalueof themarginalprod-
uct (i.e., the price of a manufacturedproducttimes the marginalproduct)equals
thewage. Thisassertionis basedon manyassumptionssuchas perfectcompetition
in labormarketsand perfectcompetitionin productmarkets.In realitythe condi-
tionsof perfectcompetitiondo not exist,butthe neoclassicalconclusionsstillhold
if therearemanybuyersand sellerswithina marketbecause the rangeof indeter-
minacyis small(Creedy1986).However,in cases wheretherearenot manybuyers
and/or sellersthe rangeof indeterminacyis wider.In this case the structuralcon-
ception of "power"may help to understandthe eventualwage rateagreedupon
by the employerandemployee. Two examplesin which therearenota largenum-
ber of buyers and/or sellers will be examined brieflyaftera structuraltheory of
power is developed.
Thestructuralfeaturesof an exchangenetworkarenodes(i.e., actors)connected
by socialtiesestablishedforongoing exchangeamongthenodes (i.e., actors)(Cook
and Whitmeyer1992).Experimentalresearchon exchange networkstructurehas
demonstratedthatvaryingconfigurationsof connections createdifferentdistribu-
tions of resources(Markovsky,Willerand Patton1988;Markovskyet al. 1993).A
key concept that derives from network structureand determinesthe differential
allocationof resourcesispower.Powercan be conceived of as derivingfromsocial
network structureand is basically represented by the number of alternative
exchange partnersa person has availableto them withina network.Furthermore,
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10. Social Networks and Economic Sociology 295
an empiricalindicatorof this kind of power is easily measured using network
exchange theory(Markovsky,Willer,andPatton1988).Thisis the Graph-Theoretic
PowerIndex(GPI).The GPI"simplytalliesthe numberof advantageouspathsand
subtractsthe numberof disadvantageouspathsto determineeachposition'spoten-
tialpower"(p. 224).Thismeasure,whose formulais given in the appendix,willbe
used to make conclusions concerningthe outcome of the wage relationbetween
employees and employers.
TheNeoclassicalAccountof the WageRelationand Power
The standardneoclassicaleconomic theorydoes not takepower intoconsidera-
tion(forothercritiquessee Bowles 1985;Reich1981).Forneoclassicaltheory,when
there are a large numberof potentialemployers(buyers) and a large numberof
potentialemployees (sellers), the wage ratewill equal the value of the marginal
productbecause the rangeof indeterminacyis small(Creedy1986).Howeverthe
social networkconception of power can help to understandhow the wage rateis
determinedin cases when the rangeof indeterminacyis wider because eitherthe
numberof buyersand/or sellersis small.
Whenthe rangeof indeterminacywidens theninterpersonalbargainingbecomes
more important.With the increased importanceof interpersonalbargainingthe
structuralpower of the variousactorsbecomes importantbecause any advantage
would allow an actoroccupyingthe advantagedposition, ceterisparibus,to usurp
resourcesfromthe less powerfulactors.Therefore,when thereis a wide rangeof
indeterminacy,the only timethatthe value of the marginalproductwill equal the
wage is when the employee and employerhave a symmetricalpower relation(in
otherwords,neitherone is advantagedby theirnetworkposition).Ifthereis not a
balance of power, then the more powerful partywill be able to usurpresources
fromthe less powerful.The bottomline is thatifthe employee has morepower in
a given structurethen, ceterisparibus,the wage will be greaterthanthe value of
the marginalproduct,and the employeris not receivingtheirproperreturnto in-
vestment in capital.And if the employer is advantagedthe wage is less than the
value of the marginalproductand the employee will no be paidthe value of his/
herhumancapitaland effort.
Considerthe following scenario.A networkstructureconsistsof five employers
froma competitiveproductmarketand 100 individualemployees (see Figure3).
Thestructurethatresultsplacesthe employerinthe advantagedstructuralposition.
The GPI(power index) forany one employerrelativeto any one employee equals
100.Thisgives the employera power advantagein dealingwith employees. Con-
clusion 1:The outcome associatedwiththe wage relationin thiscasewill favorthe
employers(i.e. the value of the marginalproductwill be morethanthe wage).
Inanotherscenario,power is equallydistributed.Thenetworkstructureconsists
of five employersfroma competitiveproductmarketand five laborunions repre-
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11. 296 AmericanJournal of Economicsand Sociology
Figure3:
WageRelationshipBetweenEmployersandEmployees
ER = Employer Actors
1,2,3,...,100 = EmployeeActors
-- = Network Ties
ER ER ER ER ER
1 2 3... 100
senting workers(see Figure4). The resultingstructuredoes not favoreitherthe
employeror the employee. The relativeGPI(power index) for any one employer
relativeto any one union equals zero. Thisgives neitherthe employeror the em-
ployee a power advantage.Conclusion2. The outcome associatedwith the wage
relationin this case will not favoreitherthe employee or the employer (i.e. the
value of the marginalproductwill equalthe wage).
One importantconclusioncan be drawnfromthisexampleaboutcases inwhich
thenumberof buyersand/orsellersarelimited:(1) Socialnetworks(as represented
networkexchange theory)play an importantrole in settingthe wage rateagreed
upon by employersandemployees.Thisconclusionwill need empiricalsupportin
orderto be verifiedand researchon this topic will be an importantareaof future
socioeconomic exploration.
OtherExamples
Fourotherareaswithin economic sociology should be exploited by social net-
work analysis:(1) Normativeand structuralvariationin the efficiencyof exchange,
(2) resourceand dynamiccomponentsin the historicaldevelopmentof industries,
(3) dynamicandresourcecomponent'srelationto socialclosureandclassstructur-
ation,and (4) theoreticaldevelopmentof social networktheory.
The social networkmetaphorcould be used to studythe normativecontentand
structuralfeaturesof marketsthataffectexchange.AsColeman(1988)argued,cer-
tainnormsallowformoreefficientexchange.Furthermore,structuralcharacteristics,
like the densityof ties withina network,can reducethe transactioncosts (Husted
1994).Thisaddsa new dimensionto the economic theoryof transactioncostspre-
sented by Williamson(1985).The economic theoryof transactioncosts arguesthat
cooperationin economic activitiesis a functionof the investmentsin transaction
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12. SocialNetworksand EconomicSociology 297
Figure 4:
Wage Relationship Between Employers and Employees
ER = Employer Actors
EE = Employee Unions
= Network Ties
ER ER ER ER ER
EE EE EE EE EE
assets by the economic actors.However,the normsand social networkstructure
can alterthe costs of cooperationamong economic actors.The norms,effective
sanctions,and variousnetworkstructuresallow particularsegments of society, or
even entirecountries,to be betteradaptedforcertaintypesof economicexchange.
Forexample, in places where trustis extremelyhigh, sanctionsareeffectivelyen-
forced, and the networkstructureis dense there is littleneed for formalrules or
organizationsthatenforceagreementsbetween exchangingparties.Insuch a mar-
ket resourcesarenot expended on developingformalrulesoron fundingsanction-
ing organizations.Thusitrunsmoreefficientlythanothermarketswhere trust,and
dense networksdo notexist.Futureinvestigationsof norms,networkstructure,and
marketsshould systematicallystudythese differencesandtheireffecton economic
exchange.
Anotherareaforfutureexplorationis the rolethatsocialnetworksplayin deter-
miningindustrialformation.Thistype of researchis justbeginningwith the work
of McGuire,Granovetter,andSchwartz(1993;McGuire1986)who explainhow the
electricindustrydeveloped usinga socialnetworkanalysis.Theyfocus on changes
in the resource component of social networksby looking at the organizational,
market,and individualnetworksof the importantplayerswithinthe electricindus-
try.Throughthis work they are able to explainwhy the centralizedpower plants
cameto predominate,as opposed to thegenerationof electricityby individualcon-
sumersthroughhome generatorsmuchlikehome furnaces(see alsoMcGuire;Gra-
novetter;Schwartz1993;Granovetterforthcoming).In this kind of researchsocial
networkanalysiscan be used to explainsocioeconomic behavior.
Studiesof the dynamicandresourcecomponentsof socialnetworkscanbe used
to explain socioeconomic processes. Researcherscould relatethe developmentof
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13. 298 AmericanJournal of Economicsand Sociology
social networksto the concept of "socialclosure"(Weber1968)or "classstructura-
tion"(Giddens 1973).An understandingof how networkschange could demon-
stratethatsocialclosureoccursin socialnetworkswith respectto certainappropri-
atedresources(theseresourcescouldbe knowledge,ownershipof property,status,
etc.). The study of network dynamicsand resourcecharacteristicscould also be
used to demonstrate"proximatestructuration,"or the local factorsthatcondition
class formation(Giddens 1973). The similarprocesses of closure and proximate
structurationcoulddemonstratethe abilityof socialnetworkanalysisto explainthe
development of classes (at least with respect to proximatestructuration),status
groups,and groupsassembledin orderto obtainand use power. Thereforesocial
network analysisprovides an avenue by which Weber'sconcept of closure and
Giddens'concept of structurationmaybe observed.
Therearemanymorepossibilitiesforresearch,buttheimportantthingistobegin
a new programof investigationinto socioeconomic topics in orderto come to a
betterunderstandingof the worldin which we live.To thisend we mightconsider
one moreareaof futuresocialnetworkresearch:Thedevelopmentof anintegrated
social networktheory.Thisworkhasbegun, butitstillhas a ways to go (e.g. Emir-
bayerand Goodwin 1994;Wellmanand Berkowitz1988).The fourcategoriesde-
veloped andused throughoutthispapercouldbe used as a frameworkwithwhich
to build a social networktheory.Butwhateverthe finaltheorylooks like, it must
be able to incorporatethe differentsocial networkconcepts thathave proved,or
will prove,theirusefulnessforunderstandingsocioeconomicbehavior.Thistaskis
vitalifwe areto transcendthe currentstateof loosely coupledsociologicalresearch
informedby the networkmetaphor.
V
Conclusion
SOCIALNETWORKShave much to offer the study of the socioeconomic behavior and
processes.Thesocialnetworkmetaphorhasspurredinterestingstudiesintheareas
of labor markets,organizations,microexchange,and macroeconomicprocesses.
Furthermore,in the futuresocial networkswill demonstratetheirutilityin other
areasas well. Forexample, social networkscan be used to understandthe wage
relationbetween employersandemployees, ortheycanbe used to studynormsas
theyrelateto "realworld"exchangerelations,transactioncosts,andefficiency.Even
when consideringpastachievementsandfuturepossibilitiesforeconomicsociology
and social networkstherearecurrentlydrawbacksto thisapproach.
Socialscientistsmustdevelop an integratedsocial networktheory.5The lackof
theoreticaldevelopmentto dateis a seriousproblemthatmustbe addressedso that
variousconceptsusingsocialnetworkscanbe incorporatedintoasingletheoretical
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14. SocialNetworksand EconomicSociology 299
framework.Thefactthatthe varyingconceptsused in socialnetworkanalysishave
lackedan integratedtheoryhasallowedconceptsto develop withinparticularareas
of specializationwithoutbeing recognizedin others.Thus,the developmentof a
social networktheoryis the most importantprojectforeconomic sociologistswho
makeuse of the socialnetworkmetaphor.Furthermoresuch a theorywould make
an importantcontributionto our understandingsocioeconomic phenomenon.
NOTES
1. PeterBlau(1975)distinguishedbetweenthreemainconceptionsof socialstructureinstructur-
alistsociology:(1) substratum,(2) configuration,and(3) differentiation.Thesubstratumconception
of socialstructureis concernedwitha sub-structurethatis responsibleforallothersocialactivities.
ForexampleKarlMarxbelievedthatfromthemodeofproduction,theeconomicsub-structure,sprang
the super-structureof culturethatdeterminedeverydayinteraction.Theconfigurationalviewtakes
thearrangementof actorswithinsocietyas itsmajorconcern.Theconfigurationapproachlooksat
"genuinestructuresinthestrictsensethatthearrangementof partscontrolsmuchofthevariancein
the phenomena"(Blau1975,p. 10). Configurationalscholarsinclude,Homans(1950),Coleman
(1974),Merton(1957),andthenetworkexchangetraditionwithinsociology.Thefinalconceptionof
socialstructureisthedifferentiationalapproachanditisconcernedwiththedifferentiatedpositions
withinsociety.Coser(1975),BlauandDuncan(1967)andLenski(1966)allarerepresentedbythis
viewof socialstructure.Thesocialnetworkapproachis as anattemptto bridgetheconfigurational
conceptionof socialstructurewiththedifferentiationapproach.
2. Thestructure-conduct-performanceapproachinindustrialorganizationliteratureisasocialnet-
workapproachforstudyingindustries.However,thisapproachis limitedto studyingthestructural
componentof socialnetworksandhasnotconcerneditselfwiththenormative,ordynamicdimen-
sionsof socialnetworks.Forexampletherulesandnormsgoverningindustrieslikethebroadcasting
industryarenotsimilarto thosegoverningthehealthcareindustry.Howdoesthisinturnaffectthe
marketstructure(i.e.thesocialnetworkstructure)oftheindustries?Furthermore,howdoesindustrial
marketstructurevaryovertime?Thestructure-conduct-performanceapproachtreatsthemarketstruc-
ture,ortheenvironment,asexogenous.Thestructureisanalyzedtoseehowitaffectsmarketconduct
andperformance(Caves1987).However,marketstructurechangesovertime.Suchchangescanbe
studiedthrougha socialnetworkapproach.Thereforethestructure-conduct-performanceapproach
couldstudythe rules,norms,andchangesin marketstructure(i.e. socialnetworkstructure)over
time,aswellasstudyingthestructuraldimensionsof socialnetworks.
3. RaceandGenderareonlyresourcesto theextentthatdiscriminationand/orpreferencesexist.
Beingfemaleisaresourceifthereisdiscriminationagainstmalesand/orapreferencetowardsfemales.
Andbeingnon-whiteisaresourceiftheirisdiscriminationagainstwhitesand/orapreferencetowards
non-whites.
4. Muchof thiscomponentistakenfromColeman's(1988)conceptof socialcapital.Socialcapital
itselfis a problematicconcept(see BaronandHannan1994),butthecentralcontentof theconcept
is vitalto sociologicalinquiryandcanbe partiallyabsorbedby thenormativecomponentof social
networks.
5. Fora recentarticlethatlaysout a frameworkof a socialnetworktheorysee Emirbayerand
Goodwin1994.
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17. 302 American Journal of Economics and Sociology
Appendix
TheGraph-TheoreticPowerIndex(GPI)Fora networkwitha singleexchangeCondition(actors
canonlyexchangeonceinanygivenperiod):
PositionI'sGPIiscalculatedas:
Mil - Mi2 + M3 - Mi4 + Mg
Where:
Mil= is thenumberof one-pathsstemmingfrompositionI,whichis thesameas thenumberof
I'srelations.
Mi2= isthenumberof nonintersectingtwopathsfromI.
MO3= isthenumberof nonintersectingthree-pathsstemmingfromI.
'g'is thegeodesicof thenetwork.Thegeodesicis thelargestnonintersectingpathof lengthk for
whichMij> 0.
AndI'spowerrelativetoJ'sis:
GPIij= GPI- GPIj.
(SeeMarkovsky,Willer,andPatton1988:224-5).
a5 OD OD
NetworkedEntrepreneursAreHereto Stay
THEMULTITUDEOFentrepreneurialstart-upsandnew venturesthatultimatelychange
thewaywe workandliveareseldomtheworkof lonelyisolatedindividualssteeped
in Ayn Randnovels and living off meagersavingswhile they pursuetheirgrand
dreams.Quitethecontrary.Themodementrepreneurs,thatis,theones who created
over $100 billion of new wealth and tens of thousandsof valuablejobs between
1981 and 1990, are as tightlynetworkedas a modem telephone system (for the
numberssee TheEconomistJanuary25, 1997,p. 19).The locus of thisbrazennet-
workingis the modernventurecapitalfirm(VC).
TheVCsprovidea greatdeal morethanequityfunding.Theyprovidemarketing
advice,financialinformation,legalservices,managementadvice,science andtech-
nologicalunderstanding,and so on. They do this througha vast armyof contacts
andconsultantswho can be mobilizedat the behest of the firstsneeze of an ailing
client-entrepreneur.Additionalinformationaboutthe evolutionof the modem VC
firmand the networks it has spawned are provided in W. D. BygraveandJ. A.
Timmons, VentureCapitalat the Crossroads(Boston: HarvardBusiness School
Press,1992).
LSM
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