bring to bear the resources available in one context to the other. One can consider
social capital to be a public good, where the creators do not necessarily benefit
themselves and do not necessarily act with the intention of creating social capital.
However, its availability provides the members with unique benefits.
Social capital forms a type of institution that the individuals may depend on.
In this context, the social structure creates an environment where obligations and
expectations of certain type of behavior are likely to be honored by its members.
Hence, in the transactional sense of trust, the trustor depends on the social structure
to reduce the risk associated with new transactions, and to provide timely and
privileged information to the participants.
Embedded Versus Arm's Length Ties
Uzzi [ 72 ] elaborates on this concept further by studying organizations in New York's
apparel industry. In this industry, the cost of entry is low which would favor a
competitive market. However, Uzzi finds a great deal of embedded links in this
industry in which participants work with each other repeatedly, providing special
pricing or favors to each other over time. Uzzi discusses the benefits of such links,
such as access to quick and fine-grained information, joint problem-solving ability
and overall trust in transactions. He reports that most embedded relationships start
with the help of third-party referral networks and over time become embedded.
In contrast with the previous work, Uzzi also points out that despite the many
benefits of embedded links, when organizations rely on these links too heavily,
other risks arise. For example, in very tight networks, organizations may end up
making non-optimal business decisions to maintain these embedded links and fulfill
obligations. Furthermore, this also limits the ability of the organization to obtain
novel ideas, access unique products, and hence improve its competitiveness. In
fact, through quantitative analysis, he shows that the most successful firms use
a combination of embedded links and arm's length links. While interactions on
embedded links rely on a heuristic decision making process, the interactions along
the arm's length links use calculative and market-based decision making strategies.
The benefits of these dual types of links have been shown for different industries;
for example in Broadway musicals, teams with a mix of long lasting relationships
as well as “fresh blood” tend to be the most successful ones [ 73 ]. Teams that rely
solely on embedded links lose opportunities for innovations. Listening to only one's
friends can create an echo chamber where everyone knows the same information and
has the same opinion. Teams with many changes in their membership have higher
costs of maintenance and do not benefit sufficiently from closer relationships. The
optimal approach for teams is to maintain embedded links for stability, but also pay
the additional cost to incorporate some new members periodically to broaden the
talent pool of the team.
One of the important implications of the social aspect of trust, as explained by
the embeddedness of individuals in a social network is that social mechanisms are
likely to play a major role in the formation and maintenance of trust relationships.