Abstract
Three important features of Indian labor markets enduringly coexist: rent-seeking, occupational immobility, and caste. These facts are puzzling, given theories that predict static, equilibrium social inequality without conflict. Our model explains these facts as an equilibrium outcome. Some people switch caste-associated occupations for an easier source of rents, rather than for productivity. This undermines trust between castes and shuts down occupational mobility, which further encourages rent-seeking due to an inability of workers to sort into occupations. We motivate our contribution with novel stylized facts exploiting a unique survey question on casteism in India, which we show is associated with rent-seeking.
Highlights
A large and important literature in development economics considers the consequences for development of productive versus extractive/rent-seeking institutions.1 Another literature focusses on the economic consequences of inequality: do economically unequal countries have worse growth?2 We analyze the important case of caste in India, a cultural context in which both of these questions are significant (Hoff and Stiglitz, 2016) – in which extractive, immiserating institutions are endogenously co-determined with social and horizontal inequality.3In particular, this paper is concerned with three important features of modern India: rent-seeking, occupational immobility, and caste
Using the village average of this variable as an approximate measure of casteism, or the local strength of the social forces of caste, we find that villages where caste is more important feature less occupational mobility and more rent-seeking
The hierarchy of the caste system is of considerable importance along numerous dimensions, and may be relevant for rent-seeking as well, but our goal is to demonstrate that the pervasive feature of rent-seeking can be parsimoniously explained by the division of Indian society into thousands of jati sub-groups, many of which are ambiguously ranked relative to each other
Summary
A large and important literature in development economics considers the consequences for development of productive versus extractive/rent-seeking institutions. Another literature focusses on the economic consequences of inequality: do economically unequal countries have worse growth?2 We analyze the important case of caste in India, a cultural context in which both of these questions are significant (Hoff and Stiglitz, 2016) – in which extractive, immiserating institutions are endogenously co-determined with social and horizontal inequality.3In particular, this paper is concerned with three important features of modern India: rent-seeking, occupational immobility, and caste. A large and important literature in development economics considers the consequences for development of productive versus extractive/rent-seeking institutions.. A large and important literature in development economics considers the consequences for development of productive versus extractive/rent-seeking institutions.1 Another literature focusses on the economic consequences of inequality: do economically unequal countries have worse growth?2 We analyze the important case of caste in India, a cultural context in which both of these questions are significant (Hoff and Stiglitz, 2016) – in which extractive, immiserating institutions are endogenously co-determined with social and horizontal inequality.. This paper is concerned with three important features of modern India: rent-seeking, occupational immobility, and caste. Digit occupation from their household head. And caste remains one of the defining features of India’s social structure: Indians are divided both vertically (into broad classes known as varna) and horizontally (into sub-caste groups known as jati ) on caste lines, into social groups that are hereditary and often endogamous.5 Akerlof (1976) provides an early analysis of the economic inefficiency of caste as a social equilibrium that shuns and punishes those who break caste customs
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