Community Networks and the Process of Development

Anyone who has spent time in a developing country knows the importance of social connections, which can help individuals land jobs, and provide them with credit and other forms of support. At first glance, it might appear that such connections distort the economy by giving select individuals an unfair advantage. However, modern economics provides another perspective on this phenomenon, arguing that when markets function imperfectly, networks of socially connected individuals can enhance economic efficiency. For example, when the ability of new hires cannot be observed by the firm, incumbent workers will refer competent members of their community to their employers. These new hires will work diligently both so as not to let down the workers that referred them, and also to avoid the social sanctions they would face from their network if they were caught shirking. In this example, social connections solve information and commitment problems. Unlike information networks, which can be organized around casual acquaintances or even anonymous online communities, networks that solve commitment problems must be based on strong social ties to support the sanctions that are needed to maintain cooperative behavior (Karlan, Mobius, Rosenblat, and Szeidl 2009; Dhillon, Iverson, and Torsvik 2013). Commitment networks will thus typically be organized around close-knit communities that have been in place for long periods of time, sometimes spanning multiple generations. Depending on the context, these communities could be based on kinship (for example, castes in India