MAKING FRIENDS TO INFLUENCE OTHERS: ENTRY AND CONTRIBUTION DECISIONS THAT AFFECT SOCIAL CAPITAL IN AN ASSOCIATION

I. INTRODUCTION In the United States, over 90,000 trade and professional associations existed in 2009 (American Society of Association Executives [ASAE] 2014). The association members contribute time, expertise, financial support, and other resources to the association. Moreover, membership in an association creates social capital, which augments and intertwines with the other assets of the association (Wollebaek and Selle 2002, 2003). The association uses its assets to produce a range of goods and services, some beneficial to members individually, and others of collective benefit (Bennett 2000; Ogilvie 2004). For instance, associations may provide information about market conditions (Bramoulle and Kranton 2007; Fafchamps and Minten 2002; Kirby 1988), offer assistance regarding new technologies, or reduce other resource constraints for members (Bandiera and Rasul 2006; Bauernschuster, Falck, and Heblich 2010). Additionally, associations may work to influence government regulations to assist members as analyzed in the interest group (Gilens and Page 2014; Smith 1995), social capital (Knack 2002; Knack and Keefer 1997), and lobbying literature (Grossman and Helpman 1994). A potential member's decision to join an association and their determination of how much to contribute to the association's social capital may depend directly on their own productivity; the goods provided by the association; current regulatory level and the ability of the association to influence the regulatory decisions of the government (Christoforou 2011; Pyle 2009). Much has been made of the effects of lobbying on regulations. For instance, Fredriksson (1997) provides a theoretical model to show that pollution taxes depend on lobby group membership. Conversely, the level of regulation stringency may affect the membership and contribution decisions of heterogeneous firms differently (Bombardini 2008). The degree to which the government is susceptible to influence, which we refer to as government influenceability, may affect regulations and how the association uses social capital. Grossman and Helpman (1994) show that when the government places more weight on welfare received from lobbying contributions, the regulatory stringency becomes more lax for those lobby groups. Helliwell and Putnam (1995) suggest that increased regulatory power of a government can lead to more association products in the hands of regulators. Given that the firm's decisions to join an association and how much they contribute to it are linked to the government's influenceability and to regulatory intensity, it is surprising that these relationships have not been systematically analyzed. In this article, we fill this gap in the literature by addressing two specific objectives. First, we identify the type of firms that the associations attract given the mix of goods they provide, where firm types are heterogeneous across productivity. Second, we determine how regulatory policy, the mix of goods provided by the association, and government influenceability affect which firms join the association (extensive margin) and how much each member contributes to the association (intensive margin) to create social capital. By formally modeling the direct and indirect factors affecting an agent's decision to join an association, we are able to understand the determinants of social capital formation in a political economy framework. There are two major strands of literature investigating social capital (Portes 1995; Sobel 2002). In the Bourdieu-Coleman tradition, social capital comprises social obligations and expectations that can serve as "credit slips" for future assistance from others (Bourdieu 1986; Coleman 1988. 1990). In this view, social capital represents a divisible and private asset that emerges from the individual's network of social relationships. On the other hand, Putnam (1993, 2000) describes social capital as a good or service shared by, and embedded in the community often exemplified by trust and other civic norms. …