Date Published: 5:04:34 PM Thursday, 23-January-2020
In standard economics, individuals are rational actors and economic forces undermine institutions that impose large inefficiencies. The persistence of the caste system is evidence of the need for psychologically more realistic models of decision-making in economics. The caste system divides South Asian society into hereditary groups whose lowest ranks are represented as innately polluted. After the historical encounter between colonial powers and South Asia, caste became capable of expressing and systematizing what had been diverse forms of social identity, community, and organization. This paper reviews work that estimates the economic costs of the caste system in particular environments: (1) In North India, discrimination between higher-caste landowners and lower-caste tenants in markets for groundwater for irrigation reduces the tenants’ agricultural yields by 45 percent. (2) Making caste identity public in North Indian classrooms reduces the cognitive performance of low-caste boys by 23 percent. (3) Because of lower-caste men’s control of working-class occupations, the proportion of lower-caste children enrolled in English-language schools in Mumbai after India opened itself up to the world market grew only one-fourth as quickly for boys as for girls, restricting boys’ occupational mobility. Given the benefit of access to caste-based networks, most Indians practice caste endogamy. The caste system is a dramatic example of an institution to which it may pay each individual to conform because others conform. The caste system also illustrates the two-way influence between people and institutions emphasized in psychology: people construct institutions, and institutions shape understandings. Abolition by law of an institution may change neither understandings nor behavior.