The relative importance of these two effects will shape the behavior of social distance along the wealth dimension. There are two cases of interest. First, when the elasticity ε<sup>w</sup> A<sup>(w, d)ofthe</sup> productivity parameter is low enough and is dominated by εγ (w), then equation (12) predicts that social distance increases with wealth.<sup>16</sup> The intuition has been discussed at several occasions. When, as assumed, (10) is mostly driven by the dowry transfer cost, poorer people will face more stringent credit constraints, translating into larger cost of equity. Thus, poorer families will opt for consanguineous marriages as a viable alternative to dowries. Second, an augmented scenario consists of assuming that the opportunity-cost-of-investment effect binds at higher levels of wealth.<sup>17</sup> Then, at low levels of wealth, (12) is mostly driven by εγ or cost of equity: poor families face very steep losses when raising cash to pay for the dowry, and thus the gains to marrying close relative are large. On the other hand, when wealth levels increase, ε<sup>w</sup> A<sup>eventuallydominates:eventhoughthe</sup> loss from dowry transfers is lower, it translates into large opportunity costs of investment that call for narrower social distance between spouses. Thus, consanguinity might be more prevalent at the two extremes of the wealth distribution suggesting that the relationship between social distance and wealth may be inverted-U shaped (for a more detailed analysis, see an earlier version of this paper, Do, Iyer and Joshi, 2006). This last result provides a theoretical foundation for the oft-cited fi nding of consanguinity among the wealthy: in societies in which women inherit land, close-kin marriage are used to keep land and other productive assets within the extended family (Goody, 1986, Agarwal, 1994, Bittles, 2001, The New York Times, 23 September 2003). Put in the context of our model, this common view is explained by the observation that large landowners may favor consanguineous marriages arguably because the payment of the dowry would require them to sell the land in order to transfer assets, which would then come at a prohibitive opportunity cost of investment.

# 4 Empirical Evidence from Bangladesh

In this section, we use data from Bangladesh to test the key predictions of the theoretical model. We fi nd very strong support for the theory, as illustrated by our fi ndings below. The data are drawn from the 1996 Matlab Health and Socioeconomic Survey, or MHSS.<sup>18</sup> We also supplement these data with that on climate data on annual rainfall levels in the Matlab area for the period 19501996.<sup>19</sup> The MHSS contains information on 4,364 households in 141 villages. Matlab is an Upazila (subdistrict) of Chandpur district, which is about 50 miles South of Dhaka, the capital of Bangladesh. 85 percent or more of the people in Matlab are Muslims and the remainder are Hindus.<sup>20</sup> Though it is geographically close to Dhaka, the area is relatively isolated and inaccessible to communication and transportation other than by river transport. The society is predominantly an agricultural

> <u>16</u> A sufficient condition is for example εγ (w) ≥ εwA<sup>(w, d)foreverywandd.</sup>

> 17 Sufficient conditions could for example be that εdA<sup>(.)isbounded,sothatthereexists(m, M)suchthatforanyw</sup> and d, ε<sup>d</sup> A<sup>(.) ∈[m, M] ,and(i)limw→0</sup> ε<sup>w</sup> <u>Aεγ</u><sup><u>(</u></sup> (<sup>w</sup> w<sup><u>,d</u></sup> )<sup><u>)</u></sup> < m, uniformly with respect to d : the interest rate curve is relatively steeper at low levels of wealth, and (ii) limw→+∞ ε<sup>w</sup> <u>Aεγ</u><sup><u>(</u></sup> (<sup>w</sup> w<sup><u>,d</u></sup> )<sup><u>)</u></sup> > M, uniformly with respect to d : the productivity curve is relatively steeper at high levels of wealth. Functions γ (w) = γ0/w<sup>γ</sup> , with γ > 0, and A (wi, wj , d) = e<sup>wi</sup> + e<sup>wj</sup> + d<sup>θ</sup> , θ < 1, would satisfy such requirements.

> 18 This survey is a collaborative effort of RAND, the Harvard School of Public Health, the University of Pennsylvania, the University of Colorado at Boulder, Brown University, Mitra and Associates and the International Centre for Diarrhoeal Disease Research, Bangladesh (ICDDRB).

> 19 This data, the “University of Delaware Air and Temperature Precipitation Data” are provided by the NOAACIRES Climate Diagnostics Center, Boulder, Colorado, USA, from their Web site at http://www.cdc.noaa.gov/.

> 20 Most Hindus in Bangladesh belong to lower castes. As a result, the structure of the caste system in Bangladesh is much less rigid than in India, and the principles of Islam play a greater role in governing social relations.

13