A theoretical model on the social networks of entrepreneurs, the exchange of social resources and the economic performances of enterprises

Abstract

By embedding economic and hierarchical resources in social networks, this paper builds a resource exchange model with resource preferences and resource reproduction. With the equilibrium, it analyzes the effect of social networks, resource status quo and entrepreneurs' individual characteristics on firm economic performance, discusses the relationship between entrepreneurs' individual characteristics and the directions of the growth of firm economic performance, and gives a condition under which resource exchange results in a growth of overall economic performance. The results show that (1) information cost (entrepreneur's bargaining power, the degree of the preference to hierarchical resources, the ability of hierarchical resource reproduction, the ability of economic resource reproduction) has a negative (positive, negative, positive) effect on firm economic performance; (2) greater differences with regard to the degree of the preference to hierarchical resources and the ability of hierarchical resource reproduction and the ability of economic resource reproduction make inter-firm economic performance comparison go oppositely, and (3) the condition for resource exchange to make overall economic performance grow is that more economic resources shall be allocated to the party with stronger ability of economic resource reproduction in the exchange. These results answer the theoretical question of “what resources entrepreneurs prefer to, how they get them from social networks and how their actions influence firm economic performance.”