The principal concern of the farmer is risk. The crops cannot fail. If they fail, you die. It is much more important to avoid a catastrophic fall in income than to have a higher standard of living most of the time. So, people shade their decisions – they spend less on intermediate inputs, choose crops which are less dependent on rainfall, scatter their fields rather than have them all in one place, and invest in livestock with a low rate of return but which provide something all year round.
They also save, and when that isn’t enough, they importune their relatives. These obligations to provide to your relatives is a form of insurance, of immense quantitative importance and surprising effectiveness.
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But this insurance comes at a cost. It is not the insurance you sign with a company which has clearly defined obligations and benefits, but a latent claim of relatives against anyone who should come into money. It is a tax, and a punitive one.
Some of the idea of the magnitude can be given from a clever experiment conducted by Carranza, Donald, Grosset-Touba, and Kaur (2025), in the Ivory Coast. They offer cashew processors the option of a blocked savings account into which they can deposit a part of their paycheck. These savings accounts do not pay interest. They exist solely to prevent one from being able to access the money for nine months. It is surprising that anyone would take up the offer, and yet many do. Because they are working at a job with pay tied strictly to productivity, through a piece rate system, we can observe how much more people are willing to work when their relatives don’t know how much they’re making.
The effects are tremendous. Earnings rise 9.4%, and attendance rises 6.5%. These gains are observed only when family members don’t know about the accounts. When they do, very few people are inclined to take up the account, ruling out that this is about self-control for the worker. The implied tax rate of the family cannot be directly known without knowing the labor supply elasticity for the workers, but we can put bounds on it through estimates elsewhere. The high end estimates of the labor supply elasticity imply that the workers who took up the account faced a tax rate on the order of 65% of additional earnings, and the lowest tax rate it could plausibly be is around 20% of income.
This finding is extremely well-replicated. Frankly, you can just go out and talk to people and see that this is true, but there are also numerous lab experiments (e.g. Jakiela and Ozier, 2016). Munir Squires (2024) also does a lab experiment, and points out that the effects of the social tax are especially binding on those with the most skill. This misallocation, in his model, lowered productivity by a quarter. People will also borrow at a considerable interest rate money which they already have themselves in savings. Baland, Guirkinger, and Mali (2011) report that in their sample in Cameroon, a fifth of borrowers pay a net interest rate of 25% a year just to hide away their income.
The social obligations which sustain coinsurance make it much harder to migrate. If you move to a far away city, who are you going to marry? India is surprisingly non-urbanized for a country of its level of development. I believe that caste is substantially connected to this.
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The need to maintain kinship networks leads inexorably to dowry, and the pattern of marriage in India. Marriages simply must be arranged in such a world. You cannot chance your children falling in love with someone outside of the caste, and the cultural separation needed to sustain endogamy without force is on the level of the Amish. In any case, once you have restricted your marriage prospects in each village to a cluster of 30 households, you would become hopelessly inbred. It would be too costly – more so in the past – to have people travel tens of miles just to interact with potential suitors, so instead it’s treated as a business decision and negotiated.
Daughters go to live with the groom’s family, and for this a price must be paid. This is not universal, however. Many other places have the sons live with the family of the daughter. The fundamental cause is the form of agriculture, and whether it requires the hoe or the plow. Hoe agriculture, commonly used for root crops, is labor intensive, but does not require anyone to be unusually strong. Women can do this, and in places with hoe agriculture, work in the fields. The plow, on the other hand, requires considerable upper body strength to operate. (It also reduces the need for weeding, which women and children might specialize in).
It is little surprise, then, that the direction of where people go to live, and where the price for marriage flows, varies with agricultural opportunities. Much of Africa pays a bride price, because much agriculture is hoe agriculture. Much of India – including our village of Rampur – is plow based agriculture, and women are not involved with cultivation. This has a long run effect on gender attitudes – Alesina, Giuliano and Nunn (2012) find that places which kept women in the house due to agriculture in the past have worse attitudes towards gender equality today, and that these norms are carried with them when they migrate elsewhere.
The payment of dowry is bound up with informal insurance. The timing of marriages are affected by droughts and other shocks. In India, a drought increases the age at which marriage occurs, while in Africa it decreases the age at which it occurs. In the former, the shock to savings means that the family must wait longer before they can afford it, while in the latter the family is more eager to sell the bride for cash to get by. Dowry thus forces families to maintain a stock of savings above what they would otherwise, and allows other people to make claims against it.
The transaction is not concluded when the dowry is paid on the wedding day. The groom’s family will continue to make claims, prompted by some necessity – sickness, Diwali, the breakdown of a motorbike – and backed up by the threat of violence against the bride. Violence against women is incredibly common in India, with 28% of women across the country reporting having been physically abused in the past year. About 5,700 women a year are killed due to disputes over dowry, with Uttar Pradesh accounting for 2,000 of them. The paradigmatic example is the bride burning, where the woman is covered in kerosene and set alight, with the aim of blaming it on a household accident or suicide. It’s a really ugly part of rural life, yet common. (I’ve received some pushback on this claim. Yes, 28% in the past year is correct. NFHS survey, page 680. The most common form is that 25% of women report being slapped by their husband.)
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They run a second experiment where they surprise people who they’ve hired to assemble paper bags with a request that they perform a task for a bonus. The results are even more astonishing – 43% of workers would refuse to do a task outside their identity for 10 minutes, even for 10 times their daily wage. It’s not a matter of effort expended, as it’s flat across the time increments. Instead, people have a conception of themselves as a person who does x and not y, and will not budge for filthy lucre. This tracks with historical evidence – Alexander Persaud (2023) found that immigrants to Fiji from high castes were willing to pay much more – 2 and a half years of wages – in order to return home.
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It goes without saying that caste solidarity leads to discrimination. Soumitra Shukla (2026), working with multinationals hiring from elite Indian colleges, shows that despite lower-caste individuals being more likely to be promoted and less likely to leave, they are weeded out by higher caste interviewers before they can be hired. It is striking how people with unambiguous surnames get stricken early on, while people with ambiguous surnames are removed only after the interview stage. Going back to Rampur and villages like it, low caste households have much worse access to water for irrigation if someone from a higher caste owns the water supply – Siwan Anderson (2011) finds that lower caste water buyers would have yields 45% higher if they were in a village where the water supplier was also of the same caste. It is striking that trade could even break down in the water market, because the good to be traded and the contracts needed are so simple. In kinship based societies, though, people have limited trust. Moscona, Nunn, and Robinson (2017) show that in places in Africa with similar customs, they trust the central government and outsiders less.
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