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Social embedding as a solution to a control problem? Evidence from Vietnamese small business* - page 36 / 52





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and compliance in social relationships can be as problematic as in an economic relationship.

5) Important exchanges and activities are undertaken without being socially

embedded. A substantial minority of loans are not heavily socially embedded. According to

some measures, the sampled business owners have considerably more social capital than they

use. On the other hand, if the business owners were limited to the activities permitted by the

social capital they do possess, there would be fewer businesses and less economic activity

than there are now. Other, more difficult to measure mechanisms, such as performance-

based contracts, exchanges with limited risk and robust action can also be used (and perhaps

they must be in any case) to address the problems of exchange.

Our results, though far from conclusive, suggest three major areas for further

attention. First, the conditions of resource mobilization in social networks needs to be better

understood. Family members’ resources can sometimes be accessed and sometimes not. Our

results are consistent with studies using very different data and methodologies which suggest

resource transfer in families (Altonji, Hayashi, and Kotlikoff 1992) and social networks

(Fafchamps and Lund 2003) are not automatic. Such transfers may themselves be bargaining

situations with each member seeking to maximize their own gain. This, in turn, implies that

some operationalizations of social capital (the resources available through one’s network)

may be flawed. Second, the conditions of enforcement of agreements need to be further

explored. We did not find the patterns of social embedding consistent with the enforceable

trust thesis. One of the common examples of socially-embedded exchange occurs in a sector

that delivers high rewards – diamond dealing. Those in less profitable areas may not be able

to afford to enforce trust. But it could also be that dyadic methods of coordination are less

costly than triadic methods. Economic rent to make agreements self-enforcing (Klein and

Leffler 1981), become cost-effective if the implied performance bonus is amortized over a


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