ABSTRACT
This chapter provides an important reason why relationships matter is because they alter the distribution of household income. It argues that changes in social capital alter the terms and level of trade and therefore alter household income. The chapter describes that increases in social capital in a social capital-rich network increase the average income of people within the network but not for those outside of the network. It also deduces the effects of changes in social capital on income distributions using two different approaches. The first approach used production models to show how social capital internalized externalities and increased the level and reduced the disparity of incomes. The second approach emphasized how social capital organized trade among social capital-rich groups. Moreover, since group size determined opportunities for trade and labor specialization and the extent to which externalities were internalized, income per group member was assumed to increase with group size.
