Links and Architecture in Village Networks (previously: Endogenous Network Formation and Informal Institutions in Village Economies)

Abstract

This paper o¤ers a bridge between the theoretical literature on endogenous network formation and the empirical work on the impact of socialnetworks on economic performance. We provide a theoretical framework of endogenous network formation that yields testable predictionsfor the network architectures generated by a particular informal institution common in village economies. We test the implications of themodel on data from rural Ethiopia. In contrast to the current literature, we demonstrate the critical role of both number of links andarchitecture in determining the impact of social networks on outcomes.Social capital matters, but its impact di¤ers by the architecture of thenetwork to which one belongs.