Social capital is an essential complement to the concepts of natural, physical and human capital and can be usedfor beneficial or harmful ends-or simply be allowed to dissipate. While allforms of capital are essentialfor development, none of them are sufficient in and of themselves. In this paper, Ifocus first on the concept of human-made capital and examine some of the essential similarities between physical, human, and social capital. In the second section, four differences between physical and social capital will be examined, including: (a) social capital does not wear out with use, but rather with disuse; (b) social capital is not easy to observe and measure; (c) social capital is hard to construct through external interventions; and (d) national and regional governmental institutions strongly affect the level and type of social capital available to individuals to pursue long-term development efforts. The third section will discuss the problem of creating social capital and present a game-theoretic analysis of how a group offarmers creates rules to allocate the benefits and costs of building and operating their own irrigation system. Empirical evidence derivedfrom a study of 150 irrigation systems in Nepal supports the conclusions of this analysis. The last section is devoted to the policy significance of the theoretical and empiricalfindings presented in this paper.
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