Fragmented Networks and Entrepreneurship in Late Imperial Russia

Abstract

Emergent economies suffer from underdeveloped market infrastructures and insufficient public institutions to enforce contract commitments and property rights. Informal reputation-based arrangements may substitute for government enforcement, but they require close-knit networks that enable monitoring. Economic development also requires access to capital, information, and other resources, which is enabled by wide-reaching and diverse networks and not by closure. How is entrepreneurship possible given these conflicting demands? In this article, the authors examine how partnership networks and reputation channel the mobilization of capital for new enterprises, using quantitative information on 4,172 corporate partnerships during the industrialization of late imperial Russia (1869–1913). They find that reputation is locally effective in small and homogeneous network components. By contrast, founders in the largest components that form the network core raise more capital from investors but benefit less from reputation and more from brokerage opportunities and ties that reach diverse communities.

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