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Can Concerns for Social Status Mitigate the ‘Lemons Problem’? Experimental Evidence from the Indian Caste Hierarchy

Subhasish Dugar and Haimanti Bhattacharya

Journal of South Asian Development, 2019, vol. 14, issue 2, 151-179

Abstract: We conducted a lab-in-the-field experiment to analyse if and how information about an individual’s social status influences efficient choices in a two-party hidden information game in which trust and trustworthiness play a central role. Recruitment of subjects from three status groups based on the Indian caste system allows us to distinguish between identity-based and status-based preferences. We find that all status groups exhibit strong in-group favouritism which fosters efficiency. The decisions of subjects from the two lower-status groups align well with identity-based preferences as they treat their out-group co-players in a statistically equivalent manner. However, subjects from the top of the hierarchy exhibit behaviour consistent with status-based preferences as their propensity to choose efficient actions systematically declines with an increase in the distance between their status and their co-player’s status. Thus, the behaviour of the top-status group closely conforms to the actual social rankings of these caste groups in India, whereas the behaviour of lower-status groups displays a binary classification of people into ‘us’ and ‘them’.

Keywords: Social status; adverse selection; lab in the field experiment; India (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:sae:soudev:v:14:y:2019:i:2:p:151-179