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Purdue University Purdue e-Pubs Open Access Dissertations Theses and Dissertations 8-2016 Three essays analyzing the role of social capital on individual and firm decision making Ariana P Torres Bravo Purdue University Follow this and additional works at: https://docs.edu/open_access_dissertations Part of the Agricultural Economics Commons Recommended Citation Bravo, Ariana P Torres, "Three essays analyzing the role of social capital on individual and firm decision making" (2016). Open Access Dissertations.edu/open_access_dissertations/867 This document has been made available through Purdue e-Pubs, a service of the Purdue University Libraries. Please contact epubs@purdue.edu for additional information. Graduate School Form 30 Updated  PURDUE UNIVERSITY GRADUATE SCHOOL Thesis/Dissertation Acceptance This is to certify that the thesis/dissertation prepared By Ariana P Torres Bravo Entitled Three Essays Analyzing the Role of Social Capital on Individual and Firm Decision Making For the degree of Doctor of Philosophy Is approved by the final examining committee: Maria I.

Marshall Chair Michael S. Waldorf Sandra Sydnor To the best of my knowledge and as understood by the student in the Thesis/Dissertation Agreement, Publication Delay, and Certification Disclaimer (Graduate School Form 32), this thesis/dissertation adheres to the provisions of Purdue University’s “Policy of Integrity in Research” and the use of copyright material. Approved by Major Professor(s): Maria I. Marshall Approved by: Gerald E.

Shively 7/18/2016 Head of the Departmental Graduate Program Date i THREE ESSAYS ANALYZING THE ROLE OF SOCIAL CAPITAL ON INDIVIDUAL AND FIRM DECISION MAKING A Dissertation Submitted to the Faculty of Purdue University by Ariana P Torres Bravo In Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy August 2016 Purdue University West Lafayette, Indiana ii Dedico esta tesis a mi familia. A mi madre, por enseñarme a amar lo hago. A mi padre, por mostrarme el valor del sacrificio. A mi hermano, por siempre creer en mí.

A mi hermana, por ser un ejemplo de inteligencia y trabajo duro. Y a Ana, por ser mi hombro y mis sueños. iii ACKNOWLEDGEMENTS I would like to acknowledge my wonderful mentor and advisor, Dr. She has been my role model and given me guidance to improve professionally and personally in the past five years.

I will be forever grateful of her patience, dedication, kindness, generosity, and support. I want to thank Dr. Michael Delgado, who has devoted much time to support my research projects and has provided guidance to achieve my goals. I would also like to thank Dr.

Corinne Alexander, who motivated me to become a better researcher. I would like to acknowledge my committee, Dr. Sandra Sydnor and Dr. Brigitte Waldorf, for their contributions and suggestions.

I would like to thank Dr Holly Schrank for her suggestions and advice. I would like to thank Dr. Ken Foster for his generous support and providing me with many research and life opportunities. I would also like to thank the Agricultural Economics Department for the supportive environment.

Lastly, I want to acknowledge my amazing group of friends David Boussios, Jacob Iest, Leah Ndaga, Akkufo Amankwah, Sharon Raszap, Lina Lopes, Sandra Usuga, Esther Texeira, Alexis Villacis, and Monica Padella. Thank you for keeping me sane during these years. iv TABLE OF CONTENTS Page LIST OF TABLES. viii LIST OF FIGURES .2 List of References.

ARE LOCAL MARKET RELATIONSHIPS TRUMPING ORGANIC CERTIFICATION? THE CASE OF SMALL AND MEDIUM FRUIT AND VEGETABLE FARMERS .1 Organic Certification in the US .2 Organic Markets and Market Channels .3 Data and Methodology .2 Empirical Model Specification .5 Conclusions and Implications .7 List of References. THE ECONOMIC IMPLICATIONS OF SOCIAL CAPITAL ON HISPANIC ENTREPRENEURSHIP .1 Motivations to Enter Self-employment .1 Hispanic Self-employment .4 Data and Methodology .1 Data and Sample .2 Empirical Model Specification .3 Dealing with Endogeneity .1 Instrumental Variable Approach .2 Generalized Propensity Score .1 How Does the Probability of Self-employment of any Hispanic Change as Hispanic Clustering Increases? .2 How Does Hispanic Heterogeneity Influence the Probability of Hispanic Self-employment? .6 Conclusions and Implications .7 List of References. 95 vi Page CHAPTER 4. THE RESILIENCE OF SMALL BUSINESS: A POST-KATRINA ANALYSIS OF SOCIAL CAPITAL .2 Post-Disaster Small Business Resilience .3 Social Capital as a Driver of Resilience .4 Data and Methodology .2 Empirical Model Specification .1 Does Social Capital Explain Small Business Resilience After Hurricane Katrina? 117 4.2 What Type of Social Capital Has the Greatest Impact for Building Small Business Resilience? .1 Does social capital explain small business resilience after Hurricane Katrina? 124 4.2 What type of social capital has the greatest impact for building small business resilience? .1 Does social capital explain small business resilience? .2 What Type of Social Capital Has the Greatest Impact for Building Small Business Resilience? .6 Conclusions and Implications .7 List of References .2 List of References.

145 viii LIST OF TABLES Table. Variable List and Description. Variable Means by Producer Type. Results of the Standard and Bivariate Probit Regressions.

Marginal Effects Are Illustrated on Percentage Change. Share of Hispanics, Their Rate of Self-Employment, Average Household Income, and Average Household Income from Self-Employment. Descriptive Statistics of Dependent and Explanatory Variables for The Hispanic Sample Using US Census Weights. First Stage of the Instrumental Variable Approach.

The Dependent Variable Is the Share of Hispanics Living in a PUMA. Descriptive Statistics of Dependent and Explanatory Variables for the Hispanic Sample Using US Census Weights. Standard Probit and IV Probit Results on the Probability of Hispanic Self- Employment. Standard Probit Results on the Probability of Self-Employment across Generations of Hispanics.

Standard Probit Results on the Probability that the Share of Each Generation of Hispanics Influences the Decision to Self-employment. Variables and Definitions. Descriptive Statistics of Characteristics of Small Businesses. Ordered Probit Regression Results for Small Business Resilience as the Result of Social Capital.

Marginal Effects are Percent Points. Ordered Probit Regression Results for Small Business Resilience as the Result of Bonding, Bridging, and Linking Social Capital. Marginal Effects Are Percent Points. 131 x LIST OF FIGURES Figure.

First Stage of the Instrumental Variable Approach. Dose-Response Function on the Effects of Hispanic Clustering On the Entrepreneurial Activity of an Average Hispanic. Marginal Effects on the Probability of Self-Employment for First (a), Second (b), and Third (c) generation Hispanics as Hispanic Clustering Increases. Dose-Response Function on Effects of Second Generation Hispanic Clustering On the Entrepreneurial Activity of an Average Hispanic.

Small Business Disaster Recovery Framework. Adapted from Marshall and Schrank (2014). Map of Business Locations in 10 Mississippi Counties (McDonald, 2014). Correlation of Social Capital and Recovery Status.

Correlation of Bonding, Bridging, and Linking Social Capital and Recovery Status. 126 xi ABSTRACT Torres Bravo, Ariana P., Purdue University, August 2016. Three Essays Analyzing the Role of Social Capital on Individual and Firm Decision Making. Major Professor: Maria Marshall.

The following dissertation is comprised of three essays that focus on different mechanisms on which social capital influences firm and entrepreneur behavior. All three essays use different econometric techniques to account for endogenous variables. Essay 1: Are Local Market Relationships Trumping Organic Certification? The Case of Small and Medium Fruit and Vegetable Farmers. This article investigates how an organic fruit and vegetable farmer’s choice to use direct-to-consumer market channels impacts his/her decision to be certified organic.

First, we model the decision to be certified organic as a conditionally independent decision from the farmer’s chosen market channels. Second, we estimate the probability of certifying organic as an endogenously- determined marketing decision to the choice of market channels, and use a bivariate probit specification to model this decision. Empirical evidence indicates that the decision to certify is endogenous to the chosen market channels. We show that farmers selling direct to consumers are less likely to certify organic.

Essay 2: The Economic Implications of Social Capital on Hispanic Entrepreneurship. This essay assesses the effect of social capital, defined as the clustering of Hispanics, on the probability of Hispanic business creation. A big issue in xii the social capital literature is identification. We use new econometric procedures to try to address this possible endogeneity and draw causal conclusions on the effect of social interactions on individual economic behavior.

This essay provides robust empirical evidence on the role of social capital on Hispanic entrepreneurship. We also tackle the constructs of Hispanic heterogeneity and find that second generation Hispanics may be used as a potential indicator for Hispanic entrepreneurial environment. Essay 3: The Resilience of Small Business: A Post-Katrina Analysis of Social Capital. Small business resilience becomes more relevant as natural disasters become more frequent.

Post-disaster business resilience is the product of many complex decisions that result from the interaction of individuals, families, businesses, and communities. Little is known about what it takes for a small business to build resilience after a natural disaster and most studies have focused at a single point in time or look at the community as the unit of analysis. This study enhances the literature by providing empirical evidence on the factors that help small businesses to build post-disaster resilience over time. This article bridges the gap between social capital and post-disaster small business resilience.

We answer two main questions. Does social capital explain small business resilience after a natural disaster? And, what type of social capital has the greatest impact for building small business resilience? These questions aim to shed light on the relevance of social networks to help small businesses face post-disaster situations. Incentives and interventions should support the creation and strengthening of community linkages through community participation and leadership development.1 Introduction A great deal of academic work is dedicated to understanding the role of financial and human capital on the individual and firm decision making. Researchers often overlook the missing link in the economic growth process that involves social interactions and shapes economic decisions: social capital.

The three essays of this dissertation address the role of social capital on the decision-making of firms and individuals. Social capital is defined as the networks between individuals, families, communities, and institutions (Elliott et al. What makes these networks a form of capital is the density of ties among the agents and how these ties enable them to exchange resources. These associations can be a source of information, employment, financial opportunities, technological knowledge, market access, and complimentary resources.

According to Iyer et al. (2005), the effect of social closeness can impact economic decision-making. How social capital influences firm and individual behavior follows the rationale that being part of a social network diminishes the social distance between individuals and their networks and leads to collaboration. The societal component changes the environment in which individuals operate.

Thus, it is likely that social interactions affect the firm’s or individual’s economic welfare and can be included as a factor in an extended utility function. 2 Several researchers participate in the analysis of social capital in regards to economic performance (Coleman, 1988; Putnam, 1995; Iyer et al., 2005; Westlund, 2006; Danes et al., 2009; Adger, 2010; Elliott et al., 2010; Hawkins and Maurer, 2010; Aldrich, 2011; Aldrich and Meyer, 2014). Researchers such as Bourdieu (1986), Coleman (1988), and Putnam (1995) are among the first ones discussing the effect of social resources embedded in individual social interactions. For Bourdieu (1986), economic decisions are explained by both, the profit maximization behavior – or the economic forms of capital – and the immaterial form of social capital.

Putnam (1995) uses a social capital index to tap into several dimensions of social capital. He presents evidence on the wide range of benefits of social capital such as productive communities, child welfare, economic growth, and government performance. From the sociology perspective, Coleman (1988) investigates several dimensions of social capital and reports that the accumulation of social capital reduces the probability of high schools dropouts. More recently, Hinrichs (2000) finds that social capital in certain markets can present economic opportunities for both customers and sellers.

For instance, in local markets there is an interplay between economic – price premium – and social – trust – aspects that serve both the consumer and the grower.