Skip to content

JoIE Blog

The official blog of the Journal of Institutional Economics

Menu
  • Home
  • Latest Posts
  • Editor-in-chief page
  • About this journal
    • Aims
    • Citation Impact
    • Notes for Contributors
    • Complaints and Appeals Procedures
    • Editors
    • International Advisory Board
    • Journal Issues
    • Elinor Ostrom Prize
    • Supplementary Material
    • Conflict of Interest Policy
  • Contact
Menu

Institutions, the social capital structure, and multilevel marketing companies

Posted on July 17, 2020March 14, 2023 by Nikhilesh Sinha

Summary of JOIE article (First View, 14 July 2020) by Jordan K. Lofthouse, The Mercatus Center at George Mason University and Virgil Henry Storr, Department of Economics, George Mason University. The complete article is available on the JOIE website.

In multilevel marketing companies (MLMs), also known as network marketing or direct selling, member-distributors earn income both from selling products and recruiting new members (Sparks and Schenk, 2001; Liu, 2018). Like any enterprise, MLM participants engage in risk, and there is no guarantee that distributors in MLMs will make profits. Many MLMs have been criticized for being similar to pyramid schemes, which results in the majority of participants making negative profits (Keep and Vander Nat, 2014; FTC, 2009). 

Despite the risks, MLMs are a popular form of enterprise in Utah, which has become a hub for MLMs. Evidence suggests that Utah has a disproportionate share of MLM companies located in the state and a disproportionate number of Utah residents participating in the companies (Team Business for Home, 2017; Lindsey, 2016; Mencimer, 2012; Canham, 2011; Taylor, 2012). Roughly one in five Utah households has participated in an MLM at some point during their lifetime (Taylor, 2004). For comparison, roughly one in thirteen adults in the United States has participated in at least one MLM during their lifetime (DeLiema et al., 2018). 

The popularity of MLMs in Utah raises a number of questions. Specifically, what explains the prevalence of and high participation rates in MLMs in Utah? Do religious institutions and social capital structures play a role in explaining the popularity of MLMs in the state? 

Our argument is that the unique and dominant religious institutions in Utah have led to the emergence of a social capital structure that makes MLMs particularly viable. Our paper provides a conceptual framework and outlines general propositions that allow us to identify how institutions and social capital structures are related, how social capital structures affect MLM prevalence and performance, and how LDS institutions affect social capital structures and MLM participation in Utah. 

First, institutions shape the social capital structure of a community, and institutional variation produces variation in social capital structures. Institutions, especially religious institutions, shape social capital structures and economic action (Iannaccone, 1998; Iyer, 2016). Not all forms of social capital are alike. Like physical capital, social capital is structural in nature because both forms of capital are heterogeneous and multi-specific (Chamlee-Wright, 2008). Social capital is heterogeneous because it cannot be reduced to one measurable stock; it is a complex structure made up of “community norms, social networks, favors given and received, potluck suppers, book groups, church bazaars, and neighborhood play groups” (Chamlee-Wright, 2008: 44). Social capital is multi-specific because its particular forms can be useful for various, but not an infinite, number of uses.

Second, some social capital structures are more conducive to specific social actions or enterprises compared to other social capital structures. Social capital can exist in many different contexts, but the qualities and characteristics of social capital will vary depending on the context. One form of social capital will be useful for the production of certain types of goods or engaging in certain types of activities, but that same form of social capital may not be useful in every circumstance. Thus, the social capital that facilitates certain types of activities may not facilitate other types of activities.

Third, successful MLMs depend on a social capital structure of bonding, bridging, and linking social capital that allows member-distributors to leverage both strong and weak ties characterized by trust and reciprocity. MLM participants must have access to social connections outside of their inner circle of friends to engage in direct selling and to recruit new sub-distributors, otherwise they are unlikely to make profits and continue participation in MLMs. To be successful, MLM member-distributors must continually recruit new member-distributors from among their social connections who have largely distinct, non-overlapping social networks.

Thus, MLMs thrive in Utah, in part, because the LDS Church’s institutions create a unique social capital structure that can be leveraged by members as they engage in MLMs. Utah is the most religiously homogeneous state. In 2018, 47 percent of the state’s population identified as members of the Church of Jesus Christ of Latter-day Saints (hereafter, LDS Church), also known as the Mormon Church (PRRI, 2018). Utah also has one of the highest religious participation rates and has a relatively high proportion of women outside the traditional labor force (Liu, 2018). 

Due largely to this religious homogeneity and high participation rates, Utah ranks first within the United States on social capital by some measures (‘The Geography of Social Capital in America’, 2018). In Utah, the ubiquitousness of Mormon institutions fosters a social capital structure where (almost all) members have access to social capital in all its forms—bonding, bridging, and linking. The LDS Church’s institutional rules strongly encourage members to make close social bonds with their neighbors and also to make meaningful connections characterized by trust and reciprocity with other church members in their region and across the world. 

The LDS-based social capital structure is conducive to successful MLMs because broad networks of social connections allow the member-distributors to sell products and recruit new members more effectively and efficiently. This LDS-Church-centered social capital structure, we believe, helps explain the disproportionate prevalence of and participation in MLM businesses in Utah.


References

Canham, M. (18 February 2011), ‘State of supplements: FTC drops direct sellers as target’, The Salt Lake Tribune. 

Chamlee-Wright, E. (2008), ‘The Structure of Social Capital: An Austrian Perspective on Its Nature and Development’, Review of Political Economy, 20(1): 41–58.

DeLiema, M., D. Shadel, A. Nofziger, and K. Pak (2018), ‘AARP Study of Multilevel Marketing: Profiling Participants and their Experiences in Direct Sales’, AARP, Retrieved from https://www.aarp.org/content/dam/aarp/aarp_foundation/2018/pdf/AARP%20Foundation%20MLM%20Research%20Study%20Report%2010.8.18.pdf

Federal Trade Commission. (2009), ‘The Bottom Line About Multilevel Marketing Plans and Pyramid Schemes’, Retrieved from https://permanent.access.gpo.gov/gpo18916/inv08-bottom-line-about-multi-level-marketing-plans.pdf

Iannaccone, L. (1998), ‘Introduction to the Economics of Religion’, Journal of Economic Literature, 36(3): 1465-1495.

Iyer, S. (2016), ‘The New Economics of Religion’, Journal of Economic Literature, 54(2): 395-441.

Jain, S., B.B. Singla, and S. Shashi. (2015), ‘Motivational factors in multilevel marketing business: A confirmatory approach’, Management Science Letters, 5(10): 903–914.

Keep, W. W. and P. J. Vander Nat (2014), ‘Multilevel marketing and pyramid schemes in the United States’, Journal of Historical Research in Marketing, 6(2): 188-210.

Lindsey, D. (8 September 2016), ‘Follow the profit: How Mormon culture made Utah a hotbed for multi-level marketers’, KUTV.

Liu, H. (2018), ‘The Behavioral Economics of Multilevel Marketing’, Hastings Business Law Journal, 14(1): 109-138.

Mencimer, S. (2012), ‘Get-Rich-Quick Profiteers Love Mitt Romney, and He Loves Them Back’, Mother Jones.

Public Religion Research Institute (2018), The American Values Altas. Retrieved from http://ava.prri.org/#religious/2018/States/religion

Sparks, J., and J. Schenk (2001), ‘Explaining the Effects of Transformational Leadership: An Investigation of the Effects of Higher-Order Motives in Multilevel Marketing Organizations’, Journal of Organizational Behavior, 22(8): 849-869.

Taylor, J. (2004), ‘Who Profits from Multi-Level Marketing? Preparers of Utah Tax Returns Have the Answer’, Federal Trade Commission public comment, Retrieved from https://www.ftc.gov/system/files/documents/public_comments/2006/07/522418-12684.pdf

Taylor, J. (2012), ‘The Case (for and) against Multi-level Marketing’, Consumer Awareness Institute.

Team Business for Home. (12 June 2017), ‘Network Marketing The Second-Biggest Industry In Utah With $8.5+ Billion In Revenue’, Business for Home.

‘The Geography of Social Capital in America’ (2018), Social Capital Project, Prepared by the Vice Chairman’s Staff of the Joint Economic Committee at the request of Senator Mike Lee. SCP REPORT NO. 1-18. April 2018.

Share this…
  • Google
  • Email
  • Facebook
  • Whatsapp
  • Twitter
  • Linkedin
  • Print
  • share 
  • share 
  • share 

Leave a Reply Cancel reply

You must be logged in to post a comment.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Related Links

Cambridge University Press

Journal of Institutional Economics homepage

WINIR

Search the site

Find posts by keywords

Africa Article summary bibliometrics common-pool resource Comparative Development Competition convergence COVID-19 Cultural dimensions Culture Democracy discrimination Economic freedom Economic institutions Economics Structure Elinor Ostrom Prize Entreprensurship environmental institutions Financial Institutions formal institutions game theory Historical Political Economy Hofstede Informal Constraints informal institutions informal rules institutional economics institutions money Ostrom Political institutions polycentric governance Polycentricity property rights public goods rule of law Rule of Law Index Symposium on Corporations taxation transaction costs trust Uncategorized United States USSR Violence

Categories

  • Article Summary (66)
  • Blog Editor Post (4)
  • Uncategorized (2)

Archives

  • June 2025
  • May 2025
  • April 2025
  • February 2025
  • December 2024
  • November 2024
  • October 2024
  • September 2024
  • July 2024
  • April 2024
  • December 2023
  • September 2023
  • August 2023
  • February 2023
  • September 2022
  • June 2022
  • March 2022
  • November 2021
  • September 2021
  • June 2021
  • May 2021
  • April 2021
  • January 2021
  • November 2020
  • September 2020
  • July 2020
  • June 2020
  • April 2020
  • March 2020
  • October 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • October 2017
  • September 2017
  • August 2017
  • July 2017
  • June 2017
  • Corruption and informal practices in the Middle East and North Africa: a pooled cross-sectional analysis
  • Jaurès’s The New Army (1911): the organisation of democratic institutions as war prevention
  • Bringing emotions into post-Northian institutional economics: a reading inspired by John Dewey
  • Understanding Masahiko Aoki’s comparative institutional analysis
  • Heterogeneous effects of economic freedom on human capital in developing countries
RSS Error: WP HTTP Error: A valid URL was not provided.
RSS Error: WP HTTP Error: A valid URL was not provided.
RSS Error: WP HTTP Error: A valid URL was not provided.
RSS Error: WP HTTP Error: A valid URL was not provided.
©2025 JoIE Blog | Built using WordPress and Responsive Blogily theme by Superb