The paper deals with economics of social capital which is defined as the capacity of society for collective action in pursuit of common good. Particular attention is paid to the interaction between social capital and formal institutions, and the impact of social capital on government efficiency. Structure of social capital and the dichotomy between its bonding and bridging forms are analyzed. Social capital measurement, its economic payoff, and transmission channels between social capital and economic outcomes are discussed. In the concluding section of the paper we summarize the results of our analysis of the role of social capital in economic conditions and welfare of Russian cities.
