Making Friends to Influence Others: Entry and Contribution Decisions that Affect Social Capital in an Association

Abstract

We examine factors affecting entry and contribution to an association that provides different goods using social capital formed by heterogeneous firms in a political economy environment. We model and solve a game that explains investments to form social capital within associations and determine the effect on the intensive and extensive marginal contributions to the association related to the government’s susceptibility to influence. Association products such as capital goods for members or lobbying the government to influence regulation affect membership and contribution decisions. Government influenceability also affects the decision to contribute to social capital, but it varies with agent productivity and association output. Often, an increase in government influenceability increases social capital in associations composed of high productivity agents because they prefer to influence policy while low productivity agents focus on production.