The Impact of Welfare on Intergroup Relations: Caste-Based Social Insurance and Social Integration in India

Religious and ethnic communities have long helped people cope with risks. Does state-provided welfare substitute for ethnicity-based social insurance? If so, does it improve intergroup relations? Ethnicity-based insurance operates through reciprocity and solidarity, requiring social investment in in-group ties. This limits the formation of out-group ties, exacerbating ethnic divisions. Welfare reduces dependence on the ethnic group, allowing individuals to form productive out-group ties and increasing intergroup integration. I test this argument in caste networks in India. I leverage panel data on household loans to show that an income support program reduced within-caste borrowing by 38.5%. Using survey data from 3,020 households, I show that welfare enhanced intercaste ties, mainly in areas with lower caste-based land inequality. I draw on 56 qualitative interviews to document how caste-based social insurance exacerbates social segregation, and why intercaste ties increase with lower group inequality. These findings illuminate the persistence and demise of ethnic divisions.