Yesterday's post about India's reservation system failed to mention a startling fact. The caste system in India has been dated to approximately 1000 BC, and it still affects the lives of a billion people in South Asia. Why so persistent? A recent paper by Northwestern University's Kripa Freitas offers an explanation. In The Indian Caste System as a Means of Contract Enforcement (PDF) she argues that it's about trade and the need for enforceable contracts:
The persistence of this system of social stratification for 3000 years of changing economic and social environments is puzzling. This paper formalizes a model of the caste system to better understand the institution and the reasons for its persistence. It argues that the caste system provided a tool for contract enforcement and facilitated trade in services, giving an economic reason for its persistence.
A caste is modeled as an information-sharing institution, which enforces collective action. Trade is modeled as a version of the one-sided prisoner’s dilemma game, where the consumer has an opportunity to default. Consumers who default on a member of a caste are punished by denying them services produced in the caste. Various features of the caste system like occupational specialization by caste, a purity scale, and a hierarchy of castes are shown to be equilibrium outcomes that improve the efficiency of contract enforcement. The implications of the model are tested empirically using unique census data from Cochin (1875), Tirunelveli (1823) and Mysore (1941).
Earlier posts on this topic:
* India: reservations and rent-seeking, 4 October 2007
* India: caste out, 1 June 2007
* India's job reservation policy: extend, or rethink? 19 December 2005