An old post with some additions... had written this from my last visit to Kerala a few weeks back and forgot to post.
One of the distinguishing features of Kerala's rural landscape is the numerous massively opulent houses (even stylish) that spring up in the most unexpected of locations. An Econ 101 analysis of these houses suggests that there is considerable room for eliminating wastage and for efficiency gains. Here are just two strands
1. I can't believe that such houses have anything to do with functional utility since they are way beyond the daily requirements of its occupants. In fact, a large number of them are virtually uninhabited, occupied as they are by the old parents (mostly confined to one or two rooms) of the first generation expatriate.
This can leave us with only one conclusion - the size of the house is a clear signaling device. It becomes a "monument" to signal the new-found wealth of the family to the neighborhood and thereby seek a status elevation.
I am inclined to believe that even assuming the obvious purpose of signaling one's new found wealth to relatives and the local community, a less conspicuous/garish approach would have sufficed. Unlike the house-owners in bigger cities, who benchmark their houses in relation to the equally big or even bigger houses of their neighbors, the owners of these mansions in Kerala's villages have no competition.
In the circummstances, Governments may have an opportunity for a Pareto improvement intervention in such spending patterns. The urge for local recognition that drives people to make massive investments in such opulent houses could be channeled to more productive avenues. One route is to incentivize people to contribute towards construction of public assets like community halls, school and hospital buildings, or even roads, in return for naming rights to those assets. This mutually beneficial arrangement will ensure that the local community gets its desired public asset and the individual gets his high-visibility local public recognition.
The house-owner could now detach the process of house construction from the pursuit of social recognition. In fact, he gains both ways, the social recognition achieved by contributing to the construction of public assets is qualitatively different and in most cases much larger than that from building large houses. Further, his investment in the house is more optimal in so far as its life-cycle costs are now minimized (maintenance and repairs are smaller).
A full-fledged policy which incentivizes people to contribe towards construction of community assets in return for fulfilling the urge for social recognition is therefore likely to yield good returns in Kerala.
2. Building large houses is certainly not unique to Malayalis. Big houses are the mark of prosperity and, as indicated earlier, a very commonplace means of signaling status. However, I am inclined towards the argument that Kerala's mansions are different from those in other places, in so far as the overwhelming majority of its owners have amassed their wealth from their wages than from some entrepreneurial or business activity.
Further, a large share of these people intend to return back and settle in their villages after a few years, when their income sources are likely to be constrained (mostly fixed deposits or some commercial activity). In the circumstances, the large and illiquid investment in houses, with their recurring maintenance costs, mean a very large, often unbearable, opportunity cost.
Update 1 (19/9/2010)
Apparently Kerala is not the only place where immigrants build massively opulent houses to signal status. "Overseas Filipino Workers" too do the same.