We investigate the importance of relative income within the Indian Caste system, using a choice experiment.
We find that slightly more than half of the marginal utility of income comes from some kind of relative income effects, on average, which is comparable to the results from previous studies in other countries. Belonging to a low caste and having a low family income are associated with higher concern for relative income. Moreover, an increase in the mean income of the caste to which the individual belongs, everything else held constant, reduces utility for the individual. Thus, the negative welfare effect of reduced relative income compared to the average own caste income dominates the positive welfare effect of increased relative income of the own caste relative to other castes.
