SOCIAL-STRUCTURE AND COMPETITION IN INTERFIRM NETWORKS - THE PARADOX OF EMBEDDEDNESS

The purpose of this work is to develop a systematic understanding of e mbeddedness and organization networks. Drawing on ethnographic fieldwo rk conducted at 23 entrepreneurial firms, I identify the components of embedded relationships and explicate the devices by which embeddednes s shapes organizational and economic outcomes. The findings suggest th at embeddedness is a logic of exchange that promotes economies of time , integrative agreements, Pareto improvements in allocative efficiency , and complex adaptation. These positive effects rise up to a threshol d, however, after which embeddedness can derail economic performance b y making firms vulnerable to exogenous shocks or insulating them from information that exists beyond their network. A framework is proposed that explains how these properties vary with the quality of social tie s, the structure of the organization network, and an organization's st ructural position in the network.