Social Capital and Market Centralisation: A Two-Sector Model

We develop a two-sector model to analyze which kind of social <p> organization generates social capital. The hypothesis is that social capital must <p> be added as an important production factor when considering decentralization <p> of production. Thus, market centralization processes in a capitalist society eventually <p> may fragmentize and thus destroy social capital if the positive externality <p> of local production and social capital is not taken into account. To our knowledge, <p> no such attempt to model social capital has yet been undertaken and this <p> gap or ‘missing link’ in economic debates has to be developed to grasp a more <p> holistic understanding of the big differences in the wealth of nations or regions. <p> The model shows that if the policy maker decides to centralize the economy, <p> then the economy moves from an potentially stable equilibrium to an unstable <p> one that may under certain condition even fluctuate forever.