The Department of Economics invites you to their weekly seminar on Wednesday, October 18th, 2023.
Time: 1:40 PM to 2:50 PM
Speaker: Akhil Ilango
Title: “Social Norms, Product Demand, and Firm Size”
Abstract: This paper examines the impact of caste norms on product demand, firm size, and real income, in rural India. First, we document novel evidence on changes in local rainfall intensity as an asymmetric demand-shifter to members of different castes. Specifically, when consumers from historically disadvantaged low-ranked communities in the hierarchy of caste system (LC) experience a positive shift in income due to good rainfall, relative to others, they increase their spending across various non-agricultural product categories, whose supply is not directly affected by rainfall. Second, we use novel data on the caste of firm owners and the caste composition of employees within a firm to document that the increase in LC households’ demand leads to higher growth for the local firms owned by members of the same caste category, relative to others. During this expansion, LC firms also increase their proportion of LC employees. Third, motivated by these empirical findings, we develop a theoretical framework of social norms where firms sell products across castes, and consumers’ taste for products depends on product quality and the caste of the producer. In response to heterogeneous consumer preferences, firms invest to influence consumers’ taste by hiring workers from the target consumers’ caste. Finally, we plan to quantify the role of “caste-specificity in demand” in lowering firm size, raising the proportion of small firms, and lowering real income, in the rural Indian economy.
We look forward to having you with us.