Was the Indian caste system efficient?

A new paper looks at some of the efficiency properties of castes:

The caste system in India has been dated to approximately 1000 B.C. and still affects the lives of a billion people in South Asia. 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).

In other words, other caste members enforce norms on you and if you don’t follow them you are kicked out and you cannot easily join another caste.  Sounds like my idea of fun.  I have a few points:

1. No way should this paper spend so much time on a formal model.

2. The tests proffered on p.36 are related only tangentially to the paper’s main propositions.

3. When it comes to normative issues, the author can do no better than to write: "This should not be interpreted as saying that the case system was free of inefficiencies."  And that comes only on p.46.  Ha!

4. The paper commits the fallacies of excess functionalism.

5. Virtually any destructive institution which keeps economic transactions on a smaller scale may make contract enforcement "easier" in some regards.

6. This is nonetheless interesting work, and many more people should do research on this and related topics.  But in terms of emphasis this paper is way off base.

The pointer is from New Economist blog, which offers related links.  Readers, are any of you willing to defend the caste system, if only in part, on economic grounds?


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