1

Social Networks and Economic Sociology:

A Proposed Research Agenda For a
More Complete Social Science

B y Michael Davem*

Abstract The social network metaphor is widely used by sociologists to study

socioeconomic behavior and processes The use of social networks generally takes
place within the ranks of sociology However, a more complete social Science would
result by combmmg work being done on social networks within sociology with
mainhne economic theory The insights from such a research agenda will help us
better understand socioeconomic behavior With this m mmd, the main objective
of this paper is to demonstrate the utility of the network metaphor to economists
This objective will be accomplished through developing four basic components of
social networks, and using them to navigate through the existing literature in eco-
nomic sociology Furthermore, topics for future research in which social networks
can provide contnbutions to the explanation of socioeconomic behavior are ex-
plored as well

Introduction

E conomic so cio lo g y covers a large amount of gray area between the disciplines of
economics and sociology (Swedberg 1990). This gray area is being explored by
“economic sociologists” from both disciplines Unfortunately, communication be­
tween the economists and sociologists conceming their exploration has not been
substantial (Baron and Hannan 1994, Davem and Eitzen 1995) This paper is an
attempt to commumcate the utility of a sociological approach to economic
sociology
Recent sociological work in the field of economic sociology has emphasized the
importance of a social network approach for understanding socioeconomic behav-

* [Michael Davem is a Ph D candidate at the University o f Notre Dame He is currently workmg on

his dissertation entitled Structural Holes and Labor Market Mobility üsingTelevision Station Managers
to Tell the Story Please direct all correspondencc to Michael Davem, UniverMty of Notre Dame, Notre
Dame, IN 46556 Or E-mail Davem l@ nd edu J The author wishes to thank Laurence S Moss for his
constructive cntique Furthermore, the author would like to thank Jesper Sorensen, Teresa Ghilar-
ducci, and David Brunsma for reading and commenting on earlier drafts of this paper Finally, I would
hke to thank Dawn Dietman for helping me with the graphics All remaimng errors are the fault of
the author only
Amencan Journal of Economics and Sociology, Vol 56, No 3 (july, 1997)
© 1997 Amencan Journal of Economics and Sociology, Inc

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288 American Journal o f Economtcs a n d Sociology

ior. The network metaphor m economic sociology emerged from the structuralist
tradition1, and ít is presently manifested m a wide vanety of sociological concepts
For example, ín the study of formal orgamzations and job mobihty Ronald Burt
(1992) has used the concept of “structural holes,” ín the study of labor markets Nan
Lin (1982, 1990) has used the concept of “social resources,” and Endre Sik (1994a,
b) has used the concept of “network capital” to explain the macroeconomic changes
associated with the transition ín Eastem Europe from State socialism to an economic
System that is more reliant on market mechanisms Other popular concepts that
make use of the social network metaphor include “interlocking directorships”
(Useem 1984; Zeitlin 1974), “social capital” (Coleman 1988), the “informal econ-
omy” (Lomnitz 1988; 1977), “embeddedness” (Granovetter 1985), and the “strength
of weak ties” (Granovetter 1973). All of these sociological terms share a social net­
work component, and together this group of wide ranging theoretical abstractions
provide sociologists with powerful tools for analyzing the economy (Baron and
Hannan 1994).
Network-based concepts, while influential ín particular sub|ect areas (such as the
study of formal orgamzations or labor markets), are not properly integrated into a
theory that bndges the varying areas of specialization (Emirbayer and Goodwin
1994) Therefore, the first goal of this paper is to develop four basic categones that
form a foundation for social networks by synthesizing the theoretical content of the
concepts that use the network metaphor These four categones will be used to
navigate through the existing literature and to demonstrate the utility of social net­
works for studying socioeconomic phenomena This will be done ín two parts First
the research that has already been done ín the field of economic sociology will be
summanzed and second, new areas for the application of social networks ín the
study of socioeconomic phenomenon will be discussed

II

Four Categorles for Social Networks

T he fundamental components of a network are nodes and connections In order

to develop a network metaphor, sociology has replaced the nodes with actors and
the connections with social ties or bonds. Thus, a social network consists of a senes
of direct and indirect ties from one actor to a collection of others, whether the central
actor is an individual person or an aggregation of individuais (e.g , a formal orga-
mzation) A network tie is defined as a relation or social bond between two mter-
acting actors
The social network image is one way to conceptualize social structure and, there­
fore, social networks will be used synonymously with social structure throughout
this paper The social network conception of social structure is fundamentally a

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 Social Networks a n d Economtc Sociology 289

relation-centered approach. The relations ín the structure are the social ties con-
necting actors Furthermore, by positing that relations among social actors form a
social structure, network analysis rests on a flexible conception of structure The
flexibility comes from the fact that ties are formed and/or broken the social structure
changes Thus social networks are flexible and dynamic because of the frequency
of tie formation and dissolution
The four basic components of social networks are as follows (1) the structural
component (2), the resou rce component, (3) the norm ative component, and (4) the
dyn am ic component The structural aspect refers to the geometnc shape of the
actors and ties within a network as well as the strength of the ties. This is the basic
building block of network analysis The resou rce focus is on the distnbution within
networks of vanous charactenstics that differentiate among actors within society
Examples of these charactenstics are ability, knowledge, ethmcity, estate, gender,
and class. The norm ative aspect of networks refers to the norms and overt rules
that influence the behavior of actors within varying networks (e g , the prevalence
of reciprocity, or the levei of trust among actors within the network, and the overt
rules govermng behavior). The normative component is also concemed with the
type of tie, which is determined by taking into consideration the social roles con-
nected through a tie (e g , is the tie between a worker and employer, between
friends, between kin, etc ) The dyn am ic component takes into account the oppor-
tumties and constraints for tie formation and the ever evolving network structure
Networks are constantly changing and any network model must descnbe these
changes. Together the structural, resource, normative, and dynamic components
form the basis of social network research
The Structural Component
The structural component takes the conflguration of the actors and ties within a
network as íts main concem All actors are treated as nodes that are affected by the
conflguration of the social ties and other actors ín the network The arrangement of
the parts (actors and ties) Controls a substantial amount of the vanance ín the out-
come of socioeconomic behavior Imagine a group of actors connected by lines that
represent social ties from one actor to another. If three actors are all tied to one
another within a network, then the structure takes on a triangular shape But, if one
person connects the other two within a network, then the structure is a straight line
These different shapes, or network structures, have varying social consequences
according to the network exchange theory (Cook and Whitmeyer 1992; Markovsky,
Ridgeway and Lawler 1993) For instance, ín the network structure consisting of a
straight line, the one person connecting the other two has a more “powerful” net­
work position relative to the others. And within the triangular structure, no actor
has a “power” advantage. Power differentials created by network structure can ac­
count for the differences ín exchange among actors Thus, just by knowing the

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290 "3^ f" . ( American Journal o f Economtcs a n d Soctology

Figure 1:

A
Example NetWork Structure

Q = Actors
----- = NetWork Ties

configuration of the actors and social ties, well-substantiated hypotheses can be

forwarded about the social and economic processes occurring within the network
Also under the domam of the structural approach falis the strength of the social
tie or bond between two actors The strength of a tie can be measured according
to a vanety of cntena, such as the length of time two actors spend together, the
amount of emotional intensity between two actors, the amount of business two
actors do together, and the amount of an actor’s “like” or “dishke” for others (Gra-
novetter 1974, Marsden and Campbell 1984, Wegener 1991) Thus, the configura-
tional, or structural, aspect of social networks takes mto account both the tie’s
“strength”, and the geometry of the connections. These structural concems are ex-
emplified by the structure-conduct-performance theory within índustnal-orgamza-
tional economics2, ín the work of Ronald Burt (1992), Mark Granovetter (1973), and
by network exchange theory (Bonacich and Bienenstock 1995, Cook 1990, Cook
and Whitmeyer 1992, Markovsky, Willer, and Patton 1988; Markovsky et al 1993,
Willer and Anderson 1981, Willer 1987).
Resource Component
Resources are something that actors can tum to for help or support ín order to
achieve their goals. The resource component of social networks takes mto account
the actor’s resources that differentiate among people in similar structural network
positions. Examples of actor resources are ability, knowledge, class, estate, race,
prestige, and gender3. These resources can be both individual charactenstics as well
as network charactenstics Through analyzing their distribution within a network, a
researcher can determine the amount of non-structural resources accessible to an
individual through their network ties For example, a person with several high-status
individuais within his or her network has a large amount of resources On the other
hand, a person connected only with low-status people has fewer resources Thus,
resources are a function of the actor’s own resources as well as the resources of all
of his or her contacts It is assumed that access to these resources provides an actor
with better odds of obtaining a favorable outcome in socioeconomic processes (e g ,
finding a job) Examples of social network analysis that use the resources compo­
nent are Nan Lin’s (1982; 1990) research on job searching, Stanton-Salazar and Dom-

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 Social Networks a n d Economic Sociology 291

Figure 2:
Example NetWork Structure

0 = Actors
— = NetWork Ties 0--------0-------- 0

busch’s (1995) study of education, and finally, studies of interlocking directorships

(Useem 1984; Zeitlin 1974).
The Normative Component
The normative component of social networks consists of the norms, regulatory
rules, and effective sanctions that govem the behavior of actors within a particular
network (Coleman 1988, 1990) 4 These norms, rules, and sanctions can facilitate or
hinder processes of exchange. Important normative considerations include the levei
of trust among members of a particular network, the regulatory rules governing a
particular network, and the effective sanctions for enforcing the rules within a par­
ticular network Vanaüons ín normative charactenstics can have socioeconomic
consequences, for example certain segments of society may be able to perform
functions more efficiently than other segments
A good example of the importance of the normative component of social net­
works is given by Coleman (1988) ín his discussion of a diamond market. This
particular diamond market is controlled by a close-knit group of Jewish business-
men Within this group the levei of trust is extremely high, which allows for efficient
functionmg of the market because buyers are allowed to peruse a particular mer-
chant’s merchandise without supervision The buyer could easily switch the dia-
monds with ones of lower quality, but the buyer does not do so because of the
strong bond of trust within the community making up this particular market If an
individual buyer were caught switching the loaned diamonds, the cost would be
ostracism by the commumty. In such a tight-kmt commumty ostracism would be a
very high pnce to pay for ímmediate gratification (Coleman 1988) The normative
regulatory rules and sanctions that govern networks and markets can have an effect
on economic transactions If the diamond market did not function in this way the
exchange of diamonds between buyers and sellers would be less efficient
Furthermore, the norms regarding the relationship between types of bonds be­
tween actors is a normative charactenstics of social networks Whether a tie is kin-
related, work-related, entertainment-related, or some combination of the above has
implications for social and economic behavior All of these roles have a set of nor­
mative expectations and rules associated with them For example the normative
dimensions of the dyadic bond between a father and a daughter can provide an
explanation of the behavior associated with their mteraction Furthermore, the nor-

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292 American Journal o f Economics a n d Sociology

mative rules and expectations conceming the employee and employer relationship
have implications for the two actor’s social and economic actions. Thus, the nor-
mative dimension associated with various ties among actors has behavioral ímpli-
cations that should be taken into consideration
The Dynamic Component
The dynamic component of social networks is the least-studied area and one that
could provide great insight into the socioeconomic processes Networks change
because ties are dissolved and created over time Studying the structural, resource,
and normative changes ín social networks would produce insight into socioeco-
nomic processes However, there are only a few studies that observe change m
networks over time (e g. Hallinan and Williams 1987, S ocial Networks 1997) While
these studies are a good start, they largely concentrate on only one dimension of
social networks A more complete study of the changes in network structure, re-
sources, and normative dimensions will help us better understand socioeconomic
behavior as a dynamic process.

III

Social Networks and the Economy

T he fo u r components of social networks are often combmed in research on partic­

ular subjects in economic sociology Three íllustrations of these combinations will

be explored in some detail. The first is the study of resource and structural com­
ponents of social networks in the job search hterature. The second example con-
cems the concept of network capital, which combines the structural, and the nor­
m ative components of social networks And, finally, the third example combines
norm ative and structural elements within exchange network theory
Structural and resource components are combmed in labor market research on
job searches. The job search hterature distmguishes between informal and formal
means of search Formal means of )ob search include advertisements, “help wanted”
signs, and direct apphcation to a company Informal means of job search, on the
other hand, involve the use of social network ties, Examples of gaining access to
jobs through social ties are job referrals, “inside” Information, or being hired directly
by a fnend. The structural and resource aspects of networks are used by the varying
theones on the use of informal means in the job search One theory is the “strength
of weak ties” (Granovetter 1973; 1994), and ít posits that weak ties provide an
efficient mechanism for obtaimng ]ob Information. Thus in the terms I have laid out
in this paper, the structural network characteristic of strength of tie is ímportant to
job searches Furthermore, Nan Lin (1981a, b) has expanded the weak tie idea to
include a resource dimension. Lin’s research has demonstrated the ímportance of
network resources for explaming why an individual is able to obtain a better job.

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 Soctal Networks an d Economic Soctology 293

Thus ín job searches the structural and resource components of networks combine
to produce a wide variety of theoretical development relevant to socioeconomic
analysis (for review see Granovetter 1994).
Endre Sik (1994a, b) ín his analysis of the changing economic System of Eastem
Europe uses the concept of “network capital”. This concept combines the structural,
and the normative components of social networks. Network capital is, basically, the
amount of favors an individual can call m at any given time. People build up these
favors through their structural position within some type of social orgamzation (the
social orgamzation could be a society, an economy, a family, a Corporation, a gov-
emment, etc ) Within a social orgamzation certain norms regulate the exchange of
these favors Some societies or orgamzations stnctly enforce the norm of reciprocity
and others do not. In those where reciprocity is stnctíy enforced, the transaction
costs of exchanging favors are lower than those where such norms are not stnctly
enforced Therefore, both normative and structural dimensions play a role ín ob-
taining and being able to use network capital
Sik (1994a, b) uses the concept of network capital to describe problems associated
with the change from a command-based to a market-based economy in the coun-
tnes of Eastem Europe According to Sik, investment in network capital, resulting
from the predominance of centrahzed economic authonty in Eastem Europe, is so
large that other forms of investment (e g., physical or human capital) are overshad-
owed Network capital does not have an easily quantifiable value, and is, therefore,
not easily transferred from one person to another (unlike financial capital for ex-
ample). Furthermore, change away from the present situation in Eastem Europe will
not occur quickly because those people holding a large investment in network
capital and the power that denves from ít, are not wilhng to give up their ínvest-
ments Therefore, the transition to a Western style market economy will not happen
quickly, íf at all, in Eastern Europe
The last example is found within the exchange network tradition of sociology
Markovsky, Willer, and Patton (1988) demonstrated the importance of both varying
network structures and the normative mies goveming exchange between actors
within different experimental networks “Our findings indicate that by only focusing
on the effects of networks p e r se, altemative network theones do not recogmze that
power and resource distributions depend as much on prevailing exchange condi-
tions [í e , normative conditions] as they do on configurations of positions and re-
lations [í e , structural charactenstics] (p 232) ’’ Thus both the structural configura­
tions of the networks are important as well as the prevailing normative conditions
for exchange in determimng the outcomes of socioeconomic behavior
These three examples are meant to illustrate how the different combinations of
the components of social networks are useful to sociologists for explaimng socio-
economic behavior These examples are drawn from a range of sociological re-

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294 American Journal o f Economtcs a n d Sociology

search. Sik’s (1994a, b) concept of “network capital” is used m macro studies of

economic change ín Eastem Europe Granovetter (1973; 1994) and Lin (1982,1990)
used components of social networks to descnbe the middle-range phenomena of
a job search And finally Markovsky, Willer, and Patton (1988) present a micro use
for network components m descnbing exchange relations within highly restricted
social networks Thus social networks have already been important to these as well
as many other areas within economic sociology

rv
Future Research

T he following examples will further demonstrate the importance of social networks

to the study of socioeconomic phenomenon The first example concems the wage
relationship between an employee and an employer, which is a normative com-
ponent of social networks because ít is one possible tie that connects social actors
ín a normatively prescnbed situation Furthermore the example will make extensive
use of structural charactenstics of networks as they have been studied ín the field
of sociology.
Wbat Can Social Networks Add to Economtc D ebates Concemtng Wages’
According to neoclassical economic wage theory, the value of the marginal prod-
uct (i e , the pnce of a manufactured product times the marginal product) equals
the wage This assertion is based on many assumptions such as perfect competition
ín labor markets and perfect competition ín product markets. In reality the condi-
tions of perfect competition do not exist, but the neoclassical conclusions still hold
íf there are many buyers and sellers withm a market because the range of índeter-
minacy is small (Creedy 1986) However, ín cases where there are not many buyers
and/or sellers the range of índeterminacy is wider. In this case the structural con-
ception of “power” may help to understand the eventual wage rate agreed upon
by the employer and employee. Two examples ín which there are not a large num-
ber of buyers and/or sellers will be examined bnefly after a structural theory of
power is developed
The structural features of an exchange network are n odes (í e , actors) connected
by social ftesestablished for ongoing ex chan ge among the nodes (í e , actors) (Cook
and Whitmeyer 1992). Experimental research on exchange network structure has
demonstrated that varying configurations of connections create different distnbu-
tions of resources (Markovsky, Willer and Patton 1988, Markovsky et al 1993). A
key concept that derives from network structure and determines the differential
allocation of resources is p ow er Power can be conceived of as denving from social
network structure and is basically represented by the number of altemative
exchange partners a person has available to them withm a network Furthermore,

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296 American Journal o f Economics and Sociology

Figure 3:
Wage Relationship Between Employers and Employees

ER = Employer Actors
100 = Employee Actors
— = Network Ties

ER ER ER ER ER

1 2 3. . . 100

sentmg workers (see Figure 4) The resulting structure does not favor either the
employer or the employee. The relative GPI (power index) for any one employer
relative to any one umon equals zero This gives neither the employer or the em­
ployee a power advantage C oncluston 2 The outcome associated with the wage
relation ín this case will not favor either the employee or the employer (í e the
value of the marginal product will equal the wage)
One important conclusion can be drawn from this example about cases ín which
the number of buyers and/or sellers are limited (1) Social networks (as represented
network exchange theory) play an important role ín setting the wage rate agreed
upon by employers and employees. This conclusion will need empincal support ín
order to be venfied and research on this topic will be an important area of future
socioeconomic exploration
Other Examples
Four other areas within economic sociology should be exploited by social net­
work analysis (1) Normative and structural vanation ín the efficiency of exchange,
(2) resource and dynamic components ín the histoncal development of industnes,
(3) dynamic and resource component’s relation to social closure and class structur-
ation, and (4) theoretical development of social network theory
The social network metaphor could be used to study the normative content and
structural features of markets that affect exchange As Coleman (1988) argued, cer-
tain norms allow for more efficient exchange Furthermore, structural charactenstics,
hke the density of ties within a network, can reduce the transaction costs (Husted
1994) This adds a new dimension to the economic theory of transaction costs pre-
sented by Williamson (1985) The economic theory of transaction costs argues that
cooperation ín economic activities is a function of the investments ín transaction

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 Social Networks and Economic Sociology 295

an empincal indicator of this kind of power is easily measured using network

exchange theory (Markovsky, Willer, and Patton 1988). This is the Graph-Theoretic
Power Index (GPI) The GPI “simply talhes the number of advantageous paths and
subtracts the number of disadvantageous paths to determine each position’s poten-
tial power” (p 224) This measure, whose formula is given in the appendix, will be
used to make conclusions concemmg the outcome of the wage relation between
employees and employers.
The N eoclassical Account o f the Wage Relation an d Power
The standard neoclassical economic theory does not take power into considera-
tion (for other critiques see Bowles 1985, Reich 1981) For neoclassical theory, when
there are a large number of potential employers (buyers) and a large number of
potential employees (sellers), the wage rate will equal the value of the marginal
product because the range of indeterminacy is small (Creedy 1986) However the
social network conception of power can help to understand how the wage rate is
determined in cases when the range of índeterminacy is wider because either the
number of buyers and/or sellers is small
When the range of índeterminacy widens then interpersonal bargaining becomes
more important. With the mcreased importance of interpersonal bargaining the
structural power of the vanous actors becomes important because any advantage
would allow an actor occupying the advantaged position, ceten sp an bu s, to usurp
resources from the less powerful actors. Therefore, when there is a wide range of
índeterminacy, the only time that the value of the margmal product will equal the
wage is when the employee and employer have a symmetncal power relation (ín
other words, neither one is advantaged by their network position) If there is not a
balance of power, then the more powerful party will be able to usurp resources
from the less powerful The bottom line is that if the employee has more power ín
a given structure then, ceteris paribu s, the wage will be greater than the value of
the marginal product, and the employer is not receiving their proper retum to ín-
vestment in capital And if the employer is advantaged the wage is less than the
value of the margmal product and the employee will no be paid the value of his/
her human capital and effort
Consider the following scenano A network structure consists of five employers
from a competitive product market and 100 individual employees (see Figure 3)
The structure that results places the employer in the advantaged structural position
The GPI (power index) for any one employer relative to any one employee equals
100 This gives the employer a power advantage m dealing with employees Con-
clusion 1. The outcome associated with the wage relation in this case will favor the
employers (i e. the value of the margmal product will be more than the wage).
In another scenano, power is equally distnbuted. The network structure consists
of five employers from a competitive product market and five labor unions repre-

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 Social Networks and Economic Sociology 297

Figure 4:
Wage Relationship Between Employers and Employees

ER = Employer Actors
EE = Employee Unions
— = Network Ties

ER ER ER ER ER

EE EE EE EE EE

assets by the economic actors However, the norms and social network structure
can alter the costs of cooperation among economic actors The norms, effective
sanctions, and vanous network structures allow particular segments of society, or
even entire countnes, to be better adapted for certain types of economic exchange
For example, ín places where trust is extremely high, sanctions are effectively en-
forced, and the network structure is dense there is little need for formal rules or
orgamzations that enforce agreements between exchanging parties In such a mar-
ket resources are not expended on developing formal rules or on funding sanction-
íng organizations Thus ít runs more efficiently than other markets where trust, and
dense networks do not exist Future investigations of norms, network structure, and
markets should systematically study these differences and their effect on economic
exchange
Another area for future exploration is the role that social networks play ín deter-
mimng industnal formation This type of research is just beginning with the work
of McGuire, Granovetter, and Schwartz (1993, McGuire 1986) who explain how the
electric industry developed using a social network analysis. They focus on changes
ín the resource component of social networks by looking at the organizational,
market, and individual networks of the important players within the electnc índus-
try Through this work they are able to explain why the centralized power plants
carne to predominate, as opposed to the generation of electncity by individual con-
sumers through home generators much like home fumaces (see also McGuire, Gra­
novetter, Schwartz 1993, Granovetter forthcoming) In this kind of research social
network analysis can be used to explain socioeconomic behavior.
Studies of the dynamic and resource components of social networks can be used
to explain socioeconomic processes Researchers could relate the development of

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298 American Journal o f Economics a n d Sociology

social networks to the concept of “social closure”(Weber 1968) or “class structura-

tion” (Giddens 1973). An understanding of how networks change could demon-
strate that social closure occurs ín social networks with respect to certain appropn-
ated resources (these resources could be knowledge, ownership of property, status,
etc ). The study of network dynamics and resource charactenstics could also be
used to demonstrate “proximate structuration,” or the local factors that condition
class formation (Giddens 1973) The similar processes of closure and proximate
structuration could demonstrate the abihty of social network analysis to explain the
development of classes (at least with respect to proximate structuration), status
groups, and groups assembled ín order to obtain and use power Therefore social
network analysis provides an avenue by which Weber’s concept of closure and
Giddens’ concept of structuration may be observed
There are many more possibilities for research, but the important thing is to begin
a new program of ínvestigation into socioeconomic topics in order to come to a
better understanding of the world m which we live To this end we might consider
one more area of future social network research- The development of an mtegrated
social network theory This work has begun, but it still has a ways to go (e g Emir-
bayer and Goodwin 1994, Wellman and Berkowitz 1988) The four categones de-
veloped and used throughout this paper could be used as a framework with which
to build a social network theory But whatever the final theory looks like, it must
be able to incorporate the different social network concepts that have proved, or
will prove, their usefulness for understanding socioeconomic behavior. This task is
vital íf we are to transcend the current State of loosely coupled sociological research
informed by the network metaphor

Conclusion

Social Netw orks have much to offer the study of the socioeconomic behavior and
processes. The social network metaphor has spurred interesting studies in the areas
of labor markets, organizations, microexchange, and macroeconomic processes
Furthermore, in the future social networks will demonstrate their utility in other
areas as well For example, social networks can be used to understand the wage
relation between employers and employees, or they can be used to study norms as
they relate to “real world” exchange relations, transaction costs, and efficiency Even
when considermg past achievements and future possibilities for economic sociology
and social networks there are currently drawbacks to this approach
Social scientists must develop an mtegrated social network theory5 The lack of
theoretical development to date is a serious problem that must be addressed so that
vanous concepts using social networks can be incorporated into a single theoretical

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 Social Networks a n d Economtc Sociology 299

framework The fact that the varying concepts used m social network analysis have
lacked an integrated theory has allowed concepts to develop within particular areas
of specialization without being recognized ín others Thus, the development of a
social network theory is the most important project for economic sociologists who
make use of the social network metaphor Furthermore such a theory would make
an important contribution to our understanding socioeconomic phenomenon.
NOTES
1 Peter Blau (1975) distinguished between three main conceptions of social structure m structur-
alist sociology (1) substratum, (2) configuration, and (3 ) differentiation The substratum conception
o f social structure is concem ed with a sab-structure that is responsible for all other social activmes
For example Karl Marx believed that from the mode of production, the econom ic sub-structure, sprang
the super-structure of culture that determined everyday interaction The configurational view takes
the arrangement o f actors within society as íts major concem The configuration approach looks at
“genuine structures in the stnct sense that the arrangement of parts Controls much of the vanance ín
the phenomena” (Blau 1975, p 10) Configurational scholars mclude, Homans (1950), Coleman
(1974), Merton (1957), and the network exchange tradition within sociology The final conception of
social structure is the differentiational approach and ít is concem ed with the differentiated positions
withm society Coser (1975), Blau and Duncan (1967) and Lenski (1966) all are represented by this
view of social structure The social network approach is as an attempt to bridge the configurational
conception o f social structure with the differentiation approach
2 The structure-conduct-performance approach ín industnal orgamzation hterature is a social net­
work approach for studying industnes However, this approach is limited to studying the structural
com ponent o f social networks and has not concem ed ítself with the normative, or dynamic dimen-
sions of social networks For example the rules and norms goveming mdustnes like the broadcasttng
industry are not similar to those goveming the health care mdustry How does this in tum affect the
market structure (í e the social network structure) of the industnes’ Furthermore, how does industrial
market structure vary over time’ The structure-conduct-performance approach treats the market struc­
ture, o r the environment, as exogenous The structure is analyzed to see how it affects market conduct
and performance (Caves 1987) However, market structure changes over time Such changes can be
studied through a social network approach Therefore the structure-conduct-performance approach
could study the rules, norms, and changes ín market structure (í e social network structure) over
time, as well as studying the structural dimensions of social networks
3 Race and Gender are only resources to the extern that disenmination and/or preferences exist
Being female is a resource íf there is discnmination against males and/or a preference towards females
And being non-white is a resource if their is discrimmation against whites and /or a preference towards
non-whites
4 Much of this com ponent is taken from Coleman’s (1988) concept of social capital Social capital
ítself is a problematic concept (see Baron and Hannan 1994), but the central content o f the concept
is vital to sociologieal inquiry and can be partially absorbed by the normative com ponent of social
networks
5 For a recent article that lays out a framework of a social network theory see Emirbayer and
Goodwin 1994

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302 Am encan Journal o f Economics a n d Sociology

A ppendix

The Graph-Theoretic Power Index (GPI) For a network with a single exchange Condition (actors
can only exchange once ín any given penod)

Position I’s GPI is calculated as

M,, - Ma + Mi3 - Mi4 + ± Mw

Where

M,) = is the number of one-paths stemming from position I, which is the same as the number of
I s reiations
M,2 = is the number of nomntersecting two paths from I
Mi3 = is the number of nomntersecting three-paths stemming from I
‘g ’ is the geodesic of the network The geodesic is the largest nomntersecting path o f length k for
which M,, > 0

And I’s power relative to J ’s is

GPI,, = GPI, - GPI,

(See Markovsky, Willer, and Patton 1988 2 2 4 -5 )

Networked Entrepreneurs Are H ere to Stay

T he M ultitude o f entrepreneunal start-ups and new ventures that ultimately change

the way we work and live are seldom the work of lonely isolated individuais steeped
m Ayn Rand novels and living off meager savings while they pursue their grand
dreams. Quite the contrary The modem entrepreneurs, that is, the ones who created
over $100 billion of new wealth and tens of thousands of valuable jobs between
1981 and 1990, are as tightly networked as a modem telephone system (for the
numbers see The Econom tst January 25, 1997, p 19) The locus of this brazen net-
working is the modem venture capital íirm (VC).
The VCs provide a great deal more than equity funding They provide marketing
advice, financial Information, legal Services, management advice, Science and tech-
nological understanding, and so on They do this through a vast army of contacts
and consultants who can be mobilized at the behest of the first sneeze of an ailing
client-entrepreneur Additional Information about the evolution of the modem VC
firm and the networks ít has spawned are provided m W D. Bygrave and J. A
Timmons, Venture C apital a t the C rossroads (Boston. Harvard Business School
Press, 1992)

LSM

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