ABSTRACT

This chapter aims to identify and analyse the conditions under which incentives exist for a dynamic increase of social capital (SC), taking into account that the public component of a mixed-public good creates certain distortions in private decisions leading to SC accumulation. The point is simply that the public goods aspect of SC is stronger than for physical capital. SC is, therefore, the public value of intangible assets, that is, the capitalised future income streams made possible by the reduction in transaction costs when mutual engagement is the favoured form of interpersonal contact. Hence, the benefits from a successful co-operative action will only partly accrue to the individuals concerned, because the demonstration that there are high payoffs to cooperation is in itself a benefit of successful co-operation. Few resources have to be devoted to monitoring the other party, and the social equilibrium is one of co-operative engagement and accumulation.