Inside the black box of social capital: micro-models of the value of contacts

This paper attempts to look inside the black box of social capital by developing micro-models of the value of contacts, leading to production functions that depend on the number of contacts. We identify 4 sources of the value of contacts: economies of scale, comparative advantage, skill spreads, and discount rates in the presence of indivisible intermediaries. We argue that skill spreads and discount rates are more relevant to the value of social contacts in developed economies while economies of scale and comparative advantage are more likely to be important in developing economies.