Social Network Theory — a literature review for understanding innovation programs

Tobias Stone @ Newsquare

A review of literature on the main themes of Social Network Theory, written for a wider PhD
thesis on Social Network Theory and startup accelerators. This version is adapted for more
general reading from the text prepared for the PhD thesis.

This review provides an overview of key literature on Social Network Theory. The intention is to
introduce key concepts that can be applied to understanding the social aspects of innovation
programs like accelerators.

The review does not aim to cover every part of Social Network Theory, which is a huge discipline,
and is written with an emphasis on understanding the dynamics affecting trust, value, and the
transfer of knowledge in social networks built around innovation programs.
This review of literature on Social Network Theory formed half of the total review for a PhD
thesis, so it is not intended to be an exhaustive review of work on this subject. There is a lot it
does not cover, and much of what it does look at is addressed in brief relative to the attention it
deserves, and would get in a work devoted only to this topic.

The bibliography and references can be used to go beyond the narrow focus of this review to read
further into Social Network Theory if needed.

1. SOCIAL NETWORKS

Social Network Theory is a large and mature topic which cannot be covered fully in this review. In
particular, the works of Granovetter, Burt, and Coleman, which are discussed below, form large
bodies of work on their own, and have generated an even larger volume of secondary research
and analysis. This review will remain limited to introducing their core theories, and addressing
some of the secondary research in order to give the reader a general introductory understanding
of Social Network Theory, and in particular aspects that impact on understanding innovation
programming.

What is a Social Network?

Borgatti & Halgin (2011) observed that the term ‘social network’ has developed to mean anything
from a private club to a website and can therefore lead to some confusion. They describe a
network as “a set of actors or nodes along with a set of ties of a specified type…that link them.”
These ties connect via shared points to link nodes that are not directly linked themselves, the
nodes being individuals, or actors in the network. Unlike groups, networks do not have natural
boundaries, and they do not need to be connected internally. These disconnected parts of the
network can become connected over time, meaning networks are fluid and ever changing.

Six Degrees, or Small World Theory

An early examination of social networks by Travers and Milgram (1969) looked at the lengths of
the paths between individuals, and the question of the probability of any two randomly selected
individuals knowing each other, or how many acquaintances might connect them in a chain of
people. They went on to examine more specifically the cluster consisting of people in the USA,
with around 200 million nodes, interconnected by a complex web of connections. They
hypothesised that individuals should all be connected to each other by at least one chain of
various lengths or pathways.

They set out to explore this hypothesis, seeking to understand the probable mean and median
number of intermediaries between any two given people. This became the well-known ‘Six
Degrees’ experiment. They challenged people to pass a document addressed to an individual to
someone they thought might be closer to that named individual, and then counted the number of
steps the document took to reach the person. In this first experiment to evaluate chain length
29% (64 of the 296 initial documents) reached the intended person. The mean number of steps
the document took was 5.4.

Six Degrees of Separation also became known as the Small World phenomena, which describes
the idea that everyone is connected to everyone else through six degrees of separation or fewer.
The body of work on the topic is examined by Sebastian Schnettler (2009), where he traces
writing from initial research in 1958 through to 2009. He identifies three dimensions of small-
world theory; structural dimensions, process dimensions, and psychological dimensions.

Schnettler explains that the structural aspect looks at how many pairs of people are connected by
a third person and how many by a chain of 2, 3, 4 or more people. The process looks at what kind
of actions can be set in motion by these connections in a social network, and what forms of
information passed along chains; and the efficacy over different lengths of chain. This looks at the
role networks have in communicating ideas, innovation, information and the effect of different
types and distances of relationship in achieving this. The work in this area explores what people
understand of their own networks and wider social structures, and how they go about
manoeuvring through them.

Schnettler observes that very little is required to render small worlds from large social clusters;
just a few highly-connected individuals who create short-cuts across the network. These people
are referred to as bridging weak ties, and they link sub clusters in a wider ecosystem.

The Strength of Weak Ties

Taking the Small World Theory further, the type of connections within a network, and in
particular those used to travel across networks, were described as Weak and Strong ties by Mark
Granovetter, in The Strength of Weak Ties (1973). He defined weak ties as contacts that are less
likely to be ‘socially involved’ with each other than strong tie contacts, or close friends.
Consequently, he observed that a network of acquaintances, or weak ties, will be a low-density
network where many of the potential relationships have yet to be made. However, a strong tie
network of close friends is likely to be highly connected, where most people know each other. The
early research by Granovetter (1973) demonstrated that people were more likely to hear about
new job opportunities though acquaintances (weak ties) than through close friends (strong ties)
because acquaintances are more likely to be privy to information that is not known already by an
actor or their close friends.

The theory of weak ties was developed in relation to finding jobs but in the wider social network
theory it also describes the spread of diseases, proliferation of ideas, and evolution of species,
thus it is ubiquitous across organic structures (Borgatti & Halgin 2011).
The real-world equivalent that Granovetter explores is the concept of a person, A, who has a very
strong network of close friends, most of whom know each other as well as A. At the same time, B
has an equivalent strong network of close friends. Within these two networks there is a lot of
duplication, and very little novelty. What A knows and shares with a few friends rapidly spreads
around her network because everyone knows everyone. Information spreads exponentially
because what A tells to 3 people gets told by them to 3 people each, and from there to 3 more
people. As most of these people are connected, the information rapidly becomes redundant, in
that everyone has already heard it. The same applies to B’s network.

When A and B meet each other, they are not only creating the value of sharing what each of them
individually knows, be it knowledge, skills, or access, but they are also creating a bridge between
their two much larger, but closed networks. A and B are weak ties; acquaintances with very little
duplication between their networks and knowledge (Granovetter 2012) and they have the
potential to bring new ideas, information, and people to their own network. By doing this they
have a value to the others, and by connecting these two networks they create value (Borgatti &
Halgin 2011).

Granovetter (1973, 1983, 2012) argues that people are socially disadvantaged if they do not have
weak tie networks, and bridges out of their own strong tie network of close friends and family.
Such people do not have access to information and knowledge that exists outside their immediate
network, and this may affect their ability to hear about job opportunities (Granovetter, 1973).
When applied to innovation, it means they are isolated from information about problems that
need solutions, solutions to problems, and opportunities (Granovetter 2012).

Structural Holes

Ronald Burt (1992) developed Granovetter’s original theory (1973, 1983) on the ‘strength of weak
ties’ by arguing that the real value in weak ties lies in when they bridge between networks, and
therefore become the conduits of knowledge, information, and value between those networks.
Individuals who bridge what Burt calls ‘structural holes’ between networks act socially in the
same way as a single bridge across a river between two trading communities, and therefore create
value both for the communities and consequently for themselves.

Burt (2004) sets out to explore how ‘brokerage provides Social Capital.’ Summing up the theory,
he writes:

“Opinion and behaviour are more homogeneous within than between groups, so people connected
across groups are more familiar with alternative ways of thinking and behaving. Brokerage across
the structural holes between groups provides a vision of options otherwise unseen, which is the
mechanism by which brokerage becomes Social Capital.”
His research examined the social networks of managers within a large American electronics
company and concluded that those who bridge ‘structural holes’ within the company’s networks
are more likely to succeed, both in terms of promotion and reward, and in terms of having ideas
accepted rather than dismissed. His hypothesis is that people who stand near and bridge
structural holes in a social network are more likely to have good ideas and to benefit from these,
because they are exposed to different ways of thinking, and consequently have greater influence.

Reflecting Granovetter (1973), Burt (2004) argued that ideas are more homogenous within
strong tie networks, so people who have weak ties and bridge into other networks will have access
to more variable options (different ideas and behaviours) from which to synthesise new ideas.

Granovetter (2012) further explained that the stronger the tie between two people, the more
overlap there will be in their social networks. Examining this theory, Friedkin (1980) concluded
that local bridges between networks tend to be via people who are weak ties, because strong ties
‘encourage triadic closure,’ meaning that two people who are strongly connected are more likely
already to know their mutual contacts — if A knows C, and B knows C, it is more likely that A and
B will also know each other via C.

Granovetter (2012) concludes from this that his argument about the importance of weak ties does
not mean that all weak ties are valuable, only those that serve as bridges between strong tie
networks are of special value. It is possible that many weak ties do not become bridges, and are
therefore not valuable within this context, however he asserts that strong ties are unlikely to
bridge, and most bridges will be weak ties.

Borgatti & Halgin (2011) conclude that this concept supposes that if bridges are the source of
novel information, and only weak ties bridge, then weak ties are the best route to novel
information.

Borgatti & Halgin go on to explore Burt’s theory of structural holes alongside Granovetter’s
Strength of Weak Ties theory. In Structural Hole theory, they observe that the focus is on
individuals and how they connect to the others in their network. If an individual is connected to
others who are themselves all inter-connected, it is unlikely that any of these individual will be
party to any novel information not also shared already with the others in the network. However,
if an individual is connected to distinct and separated clusters within a network, then that
individual will be exposed to non-redundant information not available to the others in the
network.

They conclude from this that access to new, non-redundant information positions an individual
to be more valuable in the wider network, and more likely to come up with good ideas based on
the fusion and novel use of this non-redundant information. Burt (2004) refers to a person with
multiple structural holes in their network as having non-redundant ties, whereas Granovetter
(2012) describes this as someone having more bridges, and argues they will by definition be weak
ties. Burt sees the strength of a tie as reflecting the extent of non-redundancy, in that over time,
and once a bridge is established, the non-redundancy ‘decays’ as information flows through it,
and the tie becomes stronger, and with more redundancy (Borgatti & Halgin 2011).

Borgatti & Halgin (2011) call this set of theories ‘flow theory’ because they rely on an underlying
function of the network described as being a conduit of information and value which ‘flows’
through the links and bridges between the nodes. The flow of information to and between
individuals is affected by their distance from each other, position in the network, and
embeddedness — how many mutual contacts they have with other nodes. This will affect how
rapidly they receive novel information, and how many times they receive it (redundancy).

Within networks, Borgatti & Halgin (2011) refer to the difference between state-type and event-
type social ties. The former are non-transitory types of relationship (familial, workplace) which
may change, or end, over time but have a continuous state within that timeframe. Event-type ties
are transactional and transient, being the way two ties engage (a conversation, business
transaction). These can be measured in terms of frequency over time, quality, and outcome. Both
of these ties facilitate ‘flow’ between nodes, which is the transmittance of things like ideas,
knowledge, goods.

Rost (2010) challenges the focus above on weak ties as key in innovation, arguing that weak ties
have no value without strong ties, but strong ties have some value without weak ties because
strong ties support each other, and can help realise the value of weak ties, whereas weak ties
together lack the social cohesion and trust to realise the value of the non-redundant information
they enjoy. Therefore, Rost argues, a network which combines strong ties with a high level of
closure in the core cluster and a large number of weak bridging ties to other clusters are the most
creative. Taking this further, Adler & Kwon (2002) propose that “weak ties facilitate the cost-
effective search for codifiable information and strong ties facilitate transfer of complex
information and tacit knowledge.”

The role of role-sets

Within this exploration of weak and strong ties and the position people have in networks, it is
valuable to understand the way they interact, and the social skills they both require and develop
to function effectively in this context. Rose Coser (1975) explores the concept of role-sets and
their place in the development of individualism in modern society, which explains how
individuals need to segment their behaviour to suit different social situations. This variety of
social interactions form a core part of an accelerator, as will be demonstrated in the second part
of this literature review.

Role-set theory explores the complexity of social interactions, depending on the time and place,
the person, and the circumstances of the engagement. The interaction of status and complex
‘role-sets’ are explained by Coser using the analogy of a medical student. ‘Medical Student’ is a
single status, but one which has many roles in relation to others; that of student to teacher,
doctor to nurse, student to other student, doctor to patient, and an array of other role-sets within
the wider medical ecosystem.

As well as ‘role-sets,’ there also exist ‘status-sets,’ in which the individual is engaging with people
of differing status, and ‘status-sequence’ in which the status position changes over time. These
concepts apply well to startups, and to the tech sector more generally, for example to the social
journey an individual makes as they travel from startup founder with no money, to founder of a
funded startup, a startup that has been sold, and potentially into being an investor. This journey
can happen quickly, and accordingly role-set and status-set change rapidly (status-sequence).

In summing up a broad body of work in sociology from Marx to Merton, and referencing this to
Granovetter’s work on weak and strong ties, Coser refers to his phrase ‘the weakness of strong
ties.’ She argues that people in closed communities, rich in strong ties and lacking weak ties, are
not exposed to many people different to themselves socially or in status. These are networks of
‘simple’ role-sets and status-sets, where there is little variety. This lack of variety does not create
situations that are socially challenging, and in which an individual can learn the social skills to
negotiate these social challenges. These lessons are crucial in manoeuvring through complex
social networks, and in particular for bridging up (status) and out (role).

Coser (1975) observes that when the word ‘parochial’ is used to describe someone’s limited
thinking or understanding of ideas, it is a geographical or social classification, being of someone
from a simple or rural social context. A connection is being made between intellectual limitations
and the lack of a person’s wider social networks, and consequently their limited exposure to
people of differing and challenging world views. She argues that having generic, simple social
interactions with similar people requires less intellectual effort than having to adapt one’s ideas
and responses to a diverse set of people with differing, challenging, and conflicting viewpoints.

A particular part of Coser’s text warrants quotation here as it describes well what happens when
we mentor startups in accelerators, or develop what we call ‘social skills:’

“in a complex role-set, individuals are more likely to be confronted with incompatible
expectations. Where this is the case, they are required to reflect upon an appropriate course of
action in relation to their status position. They must decide whether to abide strictly by the rules
or to reinterpret or even defy them, and weigh each decision in relation to their own purposes of
action and the purposes of others. This calls for innovation, sometimes in the form of violation of
custom and hierarchical modes… it also forces a certain measure of flexibility, as differences are
“ironed out,” through negotiation and compromise, through a social process that forces each
participant to take into account the vantage point of the other person.” (Rose Coser 1975)
Coser goes on to suggest that in social networks, subordinates, or people of low social status, are
expected to conform to behavioural and social norms. A social structure that allows for flexibility
over conformity is more complex, requiring individuals to account for more variables in
expectation and reaction from different role-sets and status-sets.

Coser explains how this spreads into language use, because an understanding of the
differentiation of the self from others leads to a realisation that more complex language is needed
to explain ideas. She argues that when we realise people are different to ourselves, we have to use
language more carefully to express ourselves accurately, and when this applies to a diverse group
of people, all different, then there is further pressure to make language even clearer.

She shows that this ‘Cognitive Flexibility’ is the ability to see things from the perspective of other
people, based on having had exposure to a wide diversity of people over time. Being trapped
inside a dense, strong tie network inhibits the development of cognitive flexibility.

This leads to Coser observing that complex socialisation in diverse societies requires, and
develops, the ability to imagine the perspective of other people in order to adapt ways to engage
appropriately, and to deal with the potential conflicts these differing approaches and ideas create,
yet also retaining a clear notion of oneself. This is the necessary skill set to build, manage, and
benefit from a complex social network, and therefore is an important factor for accelerators.

2. SOCIAL CAPITAL

This section will examine what Social Capital is and how it manifests within social networks, in
particular how it leads to higher levels of trust, and how it affects the value of particular social
network structures, and their behaviour. Lin (1999) suggests that Social Capital refers to gains
made by an individual or group as a result of the interaction between actors in a social network.
This capital is not economic or human capital and being part of a social network is therefore
described as Social Capital.

Definition of Social Capital

The meaning and effects of ‘Social Capital’ are not clearly defined (Portes 2000). Consequently,
there exist a broad range of definitions, or attempts to define Social Capital, but there is no clear
consensus for the conceptualisation of Social Capital (Bjørnskov & Sønderskov 2012).

Coleman (1988) describes three forms of capital in relation to each other. Physical capital is
created by adapting materials to form tools that can be used to produce things, and thereby
create value. Human capital is created by adapting a person, through education and training, to
give them skills and capabilities that enable them to act in new ways, and thereby create value.
Consequently, Social Capital, as an extension of this logic, is where changes in relations between
people enable them to act in new ways and create value. It is less tangible than either physical or
human capital because the value resides in the relations between people. Social Capital facilitates
the creation of value, just as physical and human capital do, because a network within which
there is greater trust is able to achieve more.

The concept of Social Capital has many different and related definitions and aspects, some of
these are outlined below to illustrate the variety of thought on the subject:

Lin (1999) suggests that “Social Capital is captured from embedded resources in social networks,”
and that Social Capital is the “investment in social relations with expected returns.” He further
(2001) defines ‘capital’ as “an investment of resources with expected returns in the marketplace.”
This theory is expanded in the context of Social Capital by describing that “capital is captured in
social relations.”

Coleman (1988) suggests that a unique feature of Social Capital is that those who generate it
usually only capture a small part of its benefit, which leads to underinvestment in Social Capital
because the returns are apparently low.

Bjørnskov & Sønderskov (2012) suggest that Social Capital has potential value because it
provides individuals the chance to access information and resources in their social network.

Adler & Kwon (2002) suggest that Social Capital is the resource available to actors as result of
their place within their social network. This can include market relations, hierarchical relations,
social relations. They further discuss whether Social Capital is in fact a form of capital, arguing
that it is a “long-lived asset” which can be developed with an expectation of future benefit.
Therefore, it has and holds value that can be expended. By investing in building links to other
networks, individuals and groups can increase their access to knowledge, ideas, power, resources,
and other advantages. By investing in developing stronger internal relations, groups can increase
their ability to operate together to build value.

Audretsch, Aldridge, & Sanders (2011) define Social Capital as the goodwill “available to
individuals or groups” which emerges from the “influence and solidarity” it affords actors. To
them, Social Capital resides in social structures, and is a long-term asset one can invest in. It
requires management and maintenance and can be used in the place of other forms of capital.

Orlowski & Wicker (2015) identify that Social Capital improves the return on investment in
physical and human capital and is a multifaceted concept. It includes the connectedness of
people (their networks) and trust as core elements. This trust at the core of Social Capital can be
broken down into inter-personal trust, institutional trust, and trustworthiness. Social Capital
“refers to features of social organization, such as trust, norms, and networks that can improve the
efficiency of society by facilitating coordinated actions.”

Davidsson & Benson (2003) observe how human capital theory suggests that knowledge allows
people to be better at identifying and exploiting new opportunities, but they challenge this,
arguing that greater accumulation of human capital, in the form of formal education, may make
someone more risk averse. They suggest that a reason that immigrants often engage more in
entrepreneurial activity is that their human capital — formal education — is not equally
recognised in their new environment, so they are encouraged to take more risk. They suggest that
Social Capital provides nascent entrepreneurs with a “wider frame of reference” from which to
develop new ideas, and a greater ability to extract benefits from their social networks.

These definitions can be interpreted as suggesting that Social Capital resides in networks and is
the outcome of interactions between actors within and between networks. It is heavily tied to
trust and can be reflected in influence and power. Social Capital forms the return on investments
made in networks, or the realisation of resources embedded in networks. Social Capital is the
currency used in networks, and the bond that holds networks together and allows them to
function effectively.

Trust and Social Capital

Trust is an important factor in internal Social Capital within an organisation, leading to greater
support and cooperation between individuals (Yeng, Tseng, & Wang 2015).

Coleman (1988) explores how different types of social structure facilitate trust in the form of
Social Capital. The concept of ‘closure’ within networks defines where the actors are all
interconnected. If A is connected with B, and separately with C, A can defy a norm in relation to B
without C finding out. If B and C are also connected, A is now subject to sanction from B and C
for harming either of them, and is therefore more likely to abide by a norm adopted by all three of
them. This closure in a network is called triadic closure.

In this respect, Coleman identified three forms of Social Capital. Obligations and expectations
depend on trustworthiness within the social network; the ability of the social network to facilitate
information-flow; and the presence of both norms and sanctions for breaching those norms.

He discusses this in the context of rotating credit associations in emerging economies, where a
high degree of ‘trustworthiness’ between the members of the group allows them to group funds,
and lend them to individuals in the group. The close social structure, or triadic closure, make it
difficult to abscond with the money; norms of behaviour and effective sanctions, and visibility
across the network of anyone who violates those norms, means that the system works well, and
therefore has strong Social Capital.
Coleman (1988, 1990) further argues that Social Capital is strengthened in closed networks
where norms are understood, and social mechanisms for reward and punishment are in place.
This leads to greater trust. Social Capital, in this context, is therefore weaker in less consolidated
networks because violations of norms are more likely to go un-noticed, or un-punished.
Coleman’s approach sees Social Capital as the relationships between people that accrue ‘credit
slips’ for actions carried out for other people. In effect, this is ‘doing favours,’ and expecting
favours back in return. Trust is required for an individual to be confident that someone will
return such a favour (Rost 2010).

Coleman (1988) interprets Granovetter’s (1985) view on embeddedness as giving a social aspect
to a utilitarian view of the economist, arguing that the social structures are not just formed for a
single economic function, but also take into consideration past and future interactions, leading to
trust, closeness, and other returns on an engagement which in turn may affect the purely
economic functions of a social network. He therefore defines Social Capital as consisting of some
aspect of a social structure, facilitating actions of actors (whether individuals or corporate) within
that social structure. Social Capital is unique as a form of capital in that it exists entirely within
the social structures, between and amongst actors in the network.

Bridging and Bonding Social Capital

In this context, Adler & Kwon (2002) argue that ‘bridging’ forms of Social Capital refer to the
relations outside the actor’s core network, or their external relations, whereas ‘bonding’ forms of
Social Capital refer to the internal ties within a group. Therefore ‘Social Capital’ can refer to the
value in an actor’s bridging links to other actors or networks. It can equally refer to the trust that
holds together a community, society, network, or group.

This difference between the approaches of Burt, who defines Social Capital as residing in the
bridging of structural holes, and Coleman who identifies Social Capital as residing in network
closure, are discussed by Adler & Kwon (2002), who conclude that both network closure and
structural holes can create value depending on the context, specifically what the actor is looking
to achieve.

Rost (2010) concludes that Burt and Coleman’s alternative views of Social Capital complement
each other, suggesting that individuals who combine strong network ties with weak network
architectures produce the most innovative solutions. She goes on to argue that the difference
between Coleman and Burt’s view on networks, and in particular on Social Capital, is that one
looks at the relationship of individuals across the network, and the other looks at the position of
the individual and the structure of the network.

Within this understanding, Rost argues that strong ties lead to innovation because they become
social mechanisms for knowledge recognition and realisation of innovative ideas. When these
strong ties are combined with weak network architecture, which has access to some structural
holes, and enough peripheral network positions and therefore access to bridging weak ties, it
adds the benefits of information flow, and access to knowledge and ideas. She concludes that
people with strong ties who are embedded in weak network architecture are most likely both to
have innovative ideas and be able to realise them.

Granovetter (2005) confirms this by explaining that social networks lead to economic outcomes
for three main reasons. Firstly, he argues that social networks affect both the flow of information
and also that trust within the network allows people to verify or qualify the information.
Secondly, he points to the role social networks have in amplifying the reward or punishment for
interactions and behaviour within a network. Thirdly, he argues that trust emerges from within
networks, and defines ‘trust’ as being a belief that others will behave in a way that may be
contrary to their immediate best interest, but in the interest of other actors in the network.

The value of Social Capital

Orlowski & Wicker (2015) observe that defining the monetary value of Social Capital is made
difficult because it has no accepted exchange value with money and is generally intangible.
Audretsch et al. (2011) also argue that Social Capital cannot be measured or quantified in the
same way as other forms of capital, and that because it resides in relationships it cannot be
owned by a single actor.

Adler & Kwon (2002) argue that a key benefit of Social Capital is information, and the quality,
relevance, and freshness of that information. Other benefits include influence, control, and
power. This second set of benefits can express itself both in people to whom multiple favours are
owed, and who can therefore influence those around them for their own benefit or that of
someone they choose to support. Another benefit of Social Capital can be seen in someone who
bridges structural holes, and in doing so exerts power because they can choose who benefits from
the bridges they build. These forms of power can benefit groups that distil them collectively,
allowing them to ‘get things done’ more effectively, thus creating value for the group.

Adler & Kwon agree that Social Capital can be converted into other forms of capital, for example
using one’s position in a social network to gain economic capital. They observe that economic
capital is most liquid, and therefore easiest to convert into human or Social Capital (e.g. paying
for an education, or buying someone lunch), whereas Social Capital is the least liquid and hardest
to convert. There is no simple mechanism whereby Social Capital can be converted into other
forms of capital in the same way that financial capital can be used to pay for something.

They affirm, however, that Social Capital can be used as a substitute or complement to other
forms of capital. For example, strong networks can be used to reach people faster, saving time
and money, and can be used to raise financial capital, or to take a product to market. Social
Capital, in the form of trust, also affects the cost of things impacted by risk, such as lending,
because that risk can be assessed more easily using Social Capital, which provides the ability to
access deeper and broader knowledge about an individual or opportunity from which to evaluate
its risk.

Granovetter (2005) refers to Lin (2001) in defining Social Capital as, for example, where a
prospective employer and employee prefer to find out about each other via a trusted actor in a
network. In this context, social networks and Social Capital are more efficient than a recruitment
agency because they exist already as part of a person’s wider activities and interactions, whereas a
recruitment agency will spend time and money to build such a network.

Therefore, whilst Social Capital cannot be quantified in direct relation to other forms of capital it
can be converted into economic and human capital. It can also be accrued and ‘spent’ to create
other forms of capital. However, Social Capital resides and is created from the links between
actors in a network, and therefore cannot exist without the context of multiple actors in a
network environment.

The risks associated with Social Capital

Whilst Social Capital has so far been explored in the context of its benefits, and as a positive
outcome of social networks, it can also have risks and the potential for negative outcomes.

These risks are explored by Adler & Kwon (2002) who argue that they primarily relate to the cost
of building and maintaining Social Capital within networks, when realising and converting that
Social Capital is difficult. A simple risk is not getting an adequate return on the investment, but
also that the work involved distracts from other important activities, for example earning
economic capital.

A related argument put forward by Granovetter (2005) is that building and maintaining close
network ties (strong ties) is expensive, whereas maintaining weak ties is easier and more
efficient. As strong ties bring redundant information, and weak ties bring non-redundant
information, the risk of building and maintaining a broad, strong tie network is that it is costly
and high in redundancy.

Adler & Kwon also describe the risks posed by Social Capital of becoming too embedded in a
network, leading to a lack of non-redundant information flows, and at a group level a lack of new
ideas resulting in parochialism and inertia. Too much Social Capital, represented by overly strong
network ties, can also lead to a sense of over-obligation within the group, and friendships that are
too close to allow more opportunistic interactions. This can ultimately lead to corruption,
conspiracy theories, and other negative behaviour by a group, where excessive Social Capital
results in loyalty to strong ties taking precedence over beneficial behaviour, and overriding
adherence to the norms of the wider weak tie community. They conclude that too much Social
Capital is seen to lead to too much network closure, so Social Capital has a risk when it becomes
too strong.

Taken further, Adler & Kwon explain that groups which have low internal bonding ties, and low
external bridging ties will suffer from low Social Capital, whereas those with high levels of
internal and external ties will enjoy strong Social Capital and the associated advantages. This
approach suggests Social Capital risks exist in networks with high internal links and low external
ties, or high external with low internal ties.

They suggest that networks with high internal links and low external links risk isolation and a
tendency towards not receiving conflicting sources of information, combined with norms that
encourage people to ‘toe the line’ rather than challenge negative behaviours. This creates a
tendency towards information bubbles, conspiracies, and corruption. Networks with high
external and low internal ties risk developing strong access to new and conflicting ideas, and
therefore a potential for innovation, but no internal Social Capital to provide the trust and
cooperation needed to act on it.

Adler & Kwon conclude that this analysis also depends on the content of the ties in these
networks, whereby the two tendencies described can result in a force for good or bad outcomes
depending on what information is travelling across the internal or external ties, and on the
underlying culture. Isolated networks can create a downward force, where false information and
ideas go unchallenged, creating a negative spiral, or they can end up creating the stable social
platform from which members of the group can reach out to other networks.

3. THE BEHAVIOUR OF SOCIAL NETWORKS

The description of social network structures combined with an understanding of Social Capital
enables an examination of behaviour within social networks, including social norms, and how
these are policed.

Norms

Societies all have norms. They are the accepted social rules that a connected group of people
agree upon. They may be codified, in the form of laws, or a constitution, but originate as and can
remain as unwritten, even unspoken rules. Norms are an important part of behaviour within
social networks, accounting for how they self-regulate, and defining the levels of trust and co-
operation, or Social Capital within the network. Norms are clearer and easier to enforce in a
dense network, which is one in which there are multiple possible connections between nodes and
triadic closure, as outlined above. Information travels more quickly through such networks, and
consequently reward and sanction, especially in terms of reputation, spread rapidly and widely.
Norms are policed. Individuals who conform to norms are rewarded by the network, and those
who break with them are sanctioned. The precise form of reward and sanction varies according to
the society or network (Granovetter 2005).

Cooperation and reciprocity

Fowler & Christakis (2008) research the spread of ideas and emotions through social networks.
They used data from the Framingham Heart Study, a 20-year longitudinal social study, to explore
how happiness spreads across social networks. They concluded that happiness spreads across
networks through a variety of ties, and that it clusters in groups, and can extend by up to three
degrees through the network. They went on to show how other concepts, like depression and
loneliness, also spread by up to three degrees through social networks, using social ties. This sets
the context for understanding how concepts like co-operation also spread through networks.

Harrison, Sciberras & James (2011) specifically explored cooperation in social networks. Their
experiment with human networks demonstrated that cooperation is most productive when
individuals can expect direct or indirect reciprocity in the future or are aware of sanctions
imposed on non-co-operators. Reputation in the network increases the chances of cooperation
again because it increases the likelihood of either reward or sanction in the future. Social
connectivity, or the place in the network structure of a particular actor, also affects the
probability and frequency of interaction, and the exchange of information. They identify that if an
actor is highly connected within the network, then cooperating with them is more likely to result
in reward, or not doing so in sanction.

In their experiment, they sought to test the investment in cooperation in a human social network
by getting individuals to carry out tasks that had a clear physical cost to the actor, but a benefit to
another actor in the network. They identified that social proximity within the network increased
cooperative investment, and that some individuals were willing to expend more effort for the
benefit of their close social ties than on themselves or their close genetic ties. They concluded this
is because strong social ties are different to strong genetic ties, whereas an individual would
expect a relative to act to support them, with non-genetic ties there may be a desire to increase
the chance of reciprocity by over-compensating their support as it cannot be taken for granted.

Through their experiment, Harrison et al. (2011) showed that social proximity in a human social
network acts in the same way as biological relatedness in a simpler animal social network, and
that people who are more cooperative are more likely to cluster in networks.

Embeddedness and tie decay

Granovetter (1985) proposes that co-operation and reciprocity are behavioural norms that are
embedded in social networks, and that the behaviour and institutions examined in neoclassical
utilitarian economics are far from being self-interested and isolated from social influence, as
suggested by economists, and instead are highly affected by ongoing social relations and
therefore not operating independently of them.

He thus combines economics and sociology and suggests that most behaviour is embedded in
networks, and therefore influenced by social outcomes and inter-relationships. In particular, he
suggests that behaviour such as expending effort to benefit others, that is apparently non-rational
as viewed from an economics perspective, becomes rational when viewed sociologically as a
function of embeddedness, and therefore complying with social norms, and responsive to social
outcomes like status, approval, or sanction.

Burt (1999) argues that embeddedness is also a factor in the decay of networks, which describes
the tendency of relationships to weaken and dissolve over time. He further observes (2001) that
the rate of decay is affected by multiple factors, and is slowed in part by people being connected
indirectly through many third parties, or being highly embedded. He posits that building such
attachment should happen as early as possible and should be embedded in other types of social
relations, for example involving spouses, friends, and relatives, not just the individual, and
should stray into social engagement, not just topic or work related. A higher level of
embeddedness will lead to a slower rate of decay.

Lin (1999) offers three further reasons why embedded resources in a social network will produce
value. Firstly, they give access to the flow of information. In an imperfect market, an individual’s
position in the network can increase their access to information not readily, or quickly, available
to others, thus giving them an advantage. Secondly, position in the social network can afford an
individual some degree of power or influence. This can relate to the decision-making of others, or
any other outcomes over which this influence creates greater value for the actor or its associates.
Thirdly, Lin points to how the position of an actor in the network, and their relationship to others
can afford them social credentials in the eyes of others. This value derives from the interaction
between actors in social networks and is therefore their Social Capital.

Link Reciprocity

The literature has thus far examined the interrelationship between Social Capital and co-
operation, showing that reciprocity is a key factor in social networks and Social Capital. Rand,
Arbesman, & Christakis (2011) argue that in evolutionary game theory reciprocity is generally
examined in the context of occurring between two actors. In this context an actor can reciprocate
the action of another actor, either by cooperating or not based on their previous action. They
suggest that this notion is harder to explore in groups, but they argue that “strategic tie formation
and dissolution” in a dynamic social network allows actors not only to respond to cooperation or
lack thereof in others by equivalent actions, but also to respond through the formation or
dissolution of ties between that actor and their network.
Consequently, if an actor in the network does not cooperate, that tie with them is dissolved,
excluding them from the group. If an actor does cooperate, their behaviour can be rewarded both
with reciprocal cooperation, but also with formation of social ties into the network. The result is a
network which can refresh rapidly, can constantly bring in co-operators, and exclude non-co-
operators (Rand et al. 2011). Harrison et al (2011) suggest this explains that co-operators tend to
cluster as a result of link reciprocity.

Rand, et al. describe how dynamic networks, where ties are created and dissolved in response to
behaviours, can amplify clustering of certain behaviours or attitudes, creating an advantage
within the network for constructive behaviour. Ties in social networks are dynamic, in that they
are created and terminated in response to people’s actions and behaviours, becoming an effective
means by which behaviour is sanctioned or rewarded. Link reciprocity therefore means that the
networks of co-operators grow rapidly, and those of non-co-operators shrink accordingly. Link
reciprocity is therefore the means by which norms are policed in dynamic social networks.

5. SUMMARY: SOCIAL NETWORK THEORY

This first part of the literature review has explored the fundamental concepts in Social Network
Theory, and shown how value resides in networks in the form of Social Capital. The behaviour of
social networks is influenced by these structures and rewarded through Social Capital. In
particular, co-operators cluster in networks, supported by link reciprocity, which rewards them
with further ties, and at the same time expels those who do not co-operate, or who are bad actors.

The extent to which an actor is embedded within a network affects their access to information,
and consequently their power and influence. All of this is the Social Capital they derive from their
position and behaviour in the network, but can be converted to economic or human capital when
those benefits are reflected in their commercial activities.

Therefore, Social Capital can be a substitute for other forms of capital because it can be converted
as a result of the benefit it brings within a social network. It can consequently be used to reward
people, and threat of withdrawal can be used to sanction them.

Within the structure of a social network, bridging ties give access to new information and ways of
thinking, and bridging ties are usually weak ties. However, strong ties allow people to get things
done effectively, and enjoy greater trust because they are more likely to return favours over time.
Therefore, a mixture of strong ties and weak ties creates the ideal social structure by which to
access new ideas and act on them to create benefit. In order to manoeuvre through this rich social
landscape, individuals require complex role and status sets in order to relate to people unlike
them, and to express their ideas to a variety of other actors.