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Abstract

It has been claimed that social capital has a significant effect on various socio-economic phenomena. Recent articles criticize the social capital literature for emphasizing the implications of social capital without understanding how social capital is formed. This paper presents a model of individual social capital investment that synthesizes ideas from several Economic disciplines so as to capture the important features of social capital: investment requires time to be allocated to social capital production, it is place-specific, the investment decision depends upon individual and social stocks, and its effects generate externalities. Comparative statics derived from the theoretical model will be estimated using data from a survey of homeowners in Franklin County, Ohio. The empirical results show that the predictions of the model reflect actual social capital investment behavior.

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