Social capital as a club good: the case of ethnic communities and entrepreneurship

Purpose – The purpose of this paper is to offer the economic theory of clubs as a potential unifying paradigm for the study of ethnic economies and social capital. Design/methodology/approach – The paper examines the basic concepts of club theory, and reviews the empirical literature. It then applies club theory to the notion of social capital within the context of ethnic communities. It is argued that although various sociological frameworks of social capital and social networks have provided powerful descriptive models of ethnic and immigrant population behaviors, social capital needs to be examined from an economic perspective to increase prescriptive capabilities. Findings – Using club theory the paper conceptualizes the benefits derived from an ethnic grouping – among which social capital can be considered the most important – as a “club” good, supplied at the co‐ethnic level and demanded by the various key stakeholders within an ethnic community. While these benefits are at least partially non‐rivalrous, they have clear characteristics of excludability and therefore form a “pseudo‐public” good. Four propositions are then offered regarding the behavior of ethnic entrepreneurs who draw from these important ethnic resources. Originality/value – This paper offers a new way to examine social capital within ethnic communities. It also provides an economic foundation to begin analyzing optimal economic and social structures within these communities.