The Problem of Search and Deliberation in Economic Action: When Social Networks really Matter

It has been argued, persuasively, that social networks hold relevance for economic action. Yet, in light of the taken-for-granted role of prices, it is crucial to specify when and how social networks influence the efficiency of economic actions taken by actors oriented primarily, as business firms tend to be, toward economic objectives. In this paper the author contends that when actors need to but cannot independently or via market mechanisms cost-effectively ascertain the identity and reliability of potential exchange partners, then scope exists for social networks to appreciably and systematically influence efficiency.