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We provide an explanation for the large spatial wage disparities and low male migration in India based on the trade-off between consumption smoothing, provided by caste-based rural insurance networks, and the income gains from migration. Our theory generates two key empirically verified predictions: (i) males in relatively wealthy households within a caste who benefit less from the redistributive (surplus-maximizing) network will be more likely to migrate, and (ii) males in households facing greater rural income risk (who benefit more from the insurance network) migrate less. Structural estimates show that small improvements in formal insurance decrease the spatial misallocation of labor by substantially increasing migration. (JEL G22, J31, J61, O15, O18, R23, Z13)

This paper addresses the question of how traditional institutions interact with the forces of globalization to shape the economic mobility and welfare of particular groups of individuals in the new economy. We explore the role of one such traditional institution—the caste system—in shaping career choices by gender in Bombay using new survey data on school enrollment and income over the past 20 years. We find that male working-class—lower-caste—networks continue to channel boys into local language schools that lead to the traditional occupation, despite the fact that returns to nontraditional white-collar occupations rose substantially in the 1990s, suggesting the possibility of a dynamic inefficiency. In contrast, lower-caste girls, who historically had low labor market participation rates and so did not benefit from the network, are taking full advantage of the opportunities that became available in the new economy by switching rapidly to English schools.

AbstractThis paper studies how traditional networks in rural and urban India have responded to economic development. In rural areas, the impact of the Green Revolution on within‐network inequality has resulted in defection by the wealthiest members of caste‐based social insurance networks. In Bombay, the most able members of the caste‐based labour market networks are exiting from the traditional occupations to participate in new occupations in which individual rather than group ability is rewarded. In both cases, the weakest members of the community are left in networks that now have lowered capacity to provide services.

Parochial politics is typically associated with poor leadership and low levels of public good provision. This paper explores the possibility that community involvement in politics need not necessarily worsen governance and, indeed, can be efficiency-enhancing when the context is appropriate. Complementing the new literature on the role of community networks in solving market problems, we test the hypothesis that strong traditional social institutions can discipline the leaders they put forward, successfully substituting for secular political institutions when they are ineffective. Using new data on Indian local governments at the ward level over multiple terms, and exploiting the randomized election reservation system, we find that the presence of a numerically dominant sub-caste (caste equilibrium) is associated with the selection of leaders with superior observed characteristics and with greater public good provision. This improvement in leadership competence occurs without apparently diminishing leaders' responsiveness to their constituency.