Evidence from Tanzania Social capital, it is widely accepted, is beneficial to economic performance. If diversity within a community such as degree of income inequality influences individual incentives to join a group that may provide shared economic benefits, several questions arise. Economic theory predicts that group participation should be affected if there is an increase in inequality. The size of the group depends on members perception of the gap between the costs and benefits of joining. As long as group size and composition remain unchanged, after the increase in inequality the rich could be liable for higher fees and may decide to drop out.
Inequality affecting group size also depends on rules of access.
If the richer members impose an exclusion rule to restrict participation to their own kind, this might prevent people from dropping out as inequality increases, but will affect the dynamics of the group to the disadvantage of poorer members. Inequality does act differentially on rich and poor people. As inequality increases, richer people drop out. The impact of inequality depends on how wealth is distributed and on rules of access. An important dimension of social capital is group performance, in addition to size and formation.