Connected, but Qualified? Social Affiliations, Human Capital, and Service Professional Performance

Abstract

While social capital has been found to play an important role in economic transactions when information is incomplete, it remains unclear how it interacts with human capital in transaction performance. This paper explores the complementarity between social affiliations and human capital in transaction performance, and how affiliations influence the match between qualified professionals and consumers. I argue that human capital is important to professional performance, but that social affiliations lead consumers to increasingly match with lower human capital professionals. Thus, while social and human capital function as complements in transaction performance, social capital can substitute for human capital in the selection process. I test my argument using a novel approach that pairs data from a primary real estate multiple listing service in Utah with hand-collected data on geographically assigned church congregation boundaries. This setting allows me to identify listings for which real estate agents and home sellers share a common church congregation, and to explore the impact of this affiliation, as well as human capital variables, on transaction outcomes. I find that agent performance improves when listing for affiliates, on average, and that gains increase with agent human capital. However, consistent with my theory, I find that sellers are more likely to use inexperienced and underqualified affiliated agents. Human capital deficiencies reduce benefits from social affiliations, and lead to inferior transaction outcomes in extreme cases. This suggests a new underexplored dark side to social capital from human capital deficiencies, which is driven by the selection process under incomplete information.