Abstract
Informal institutions play an important role in resource allocation across entrepreneurs in developing countries. I focus on the caste system in India and document three stylized facts. First, entrepreneurs of historically disadvantaged castes have a higher average revenue product of capital, arpk, relative to high-caste enterprises. Second, cross-caste differences in arpk are driven by small enterprises. Third, the majority of these differences are concentrated in financially underdeveloped regions. In a model of entrepreneurship, I find that the cross-caste differences in arpk are explained by differences in access to credit and that such asymmetries reduce output per capita by 5.6%.
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