Social Capital and Community Governance

Social capital generally refers to trust, concern for one’s associates, a willingness to live by the norms of one’s community, and to punish those who do not. While essential to good governance, these behaviors and dispositions appear to conflict with the fundamental behavioral assumptions of economics whose archetypal individual--“Homo economicus”--is entirely self-regarding. We regard these behaviors and dispositions as aspects of what we term community governance. We suggest that (i) community governance addresses some common market and state failures but typically relies on insider-outsider distinctions that may be morally repugnant; (ii) the individual motivations supporting community governance are not captured by either the conventional self-interested preferences of “Homo economicus” or by unconditional altruism towards one’s fellow community members; (iii) well-designed institutions make communities, markets, and states complements, not substitutes; (iv) with poorly designed institutions, markets and states can crowd out community governance; (v) some distributions of property rights are better than others at fostering community governance and assuring complementarity among communities, states, and markets; and (vi) far from representing holdovers from a premodern era, the small-scale local interactions that characterize communities are likely to increase in importance as the economic problems that community governance handles relatively well become more important.