DeMo by NaMo (Demonetization by Narendra Modi): Money burning in India

Despite the well-documented hardship caused by demonetization policy implemented on 8th November 2016 in India, the large scale public support and acceptance of it was puzzling. Was this acceptance a silent protest to punish those with ill-gotten wealth and an aversion towards the growing inequality in the country? Motivated by this ambiguity, this thesis attempts to understand the demonetization acceptance as being in line with the research in experimental economics and experimental psychology that argues that notions such as inequity aversion and fairness drives human behaviour into taking decisions which are not economically rational. More specifically, the study will examine the role of social preferences and fairness in an economic agents’ behaviour. The research paper designs a “money-burning” experiment in a field setting in India and attempts to mimic the acquisition of money through unfair means (black money) and thereafter offers participants a chance to punish each other (reduce each other’s money at a cost to themselves). The study finds a balanced support for both, self-interest behaviour and fairness preference. Empirically, the study did not find any link between the burning behaviour and demonetization acceptance.