DP11763 Network Capital

Author(s):	Robert Akerlof, Richard Holden
Publication Date:	January 2017
Keyword(s):	increasing returns, inequality, investment, network capital
JEL(s):	D24, D30, D85, G30, L26
Programme Areas:	Financial Economics, Industrial Organization
Link to this Page:	www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11763

This paper explores the problem of assembling capital for projects. It can be difficult to assemble capital, when it is disaggregated, for a project that exhibits increasing returns. Small investors may be reluctant to participate, as they may question the ability of the project owner to raise the additional capital he requires. This suggests the possibility that agents with blocks of capital (capital that is already aggregated) might earn rents. Similarly, agents with "network capital" - that is, an ability to aggregate the capital of others - may earn rents. In this paper, we develop a theory of the rents attached to capital assembly, and discuss the implications for a range of issues from investment, to growth, to inequality.