Networks and Misallocation: Insurance, Migration, and the Rural-Urban Wage Gap

Kaivan Munshi and Mark Rosenzweig

No 1516, RFBerlin Discussion Paper Series from Rockwool Foundation Berlin (RF Berlin)

Abstract: We provide an explanation for the large spatial wage disparities and low male migration in India based on the trade-off between consumption-smoothing, provided by caste-based rural insurance networks, and the income-gains from migration. Our theory generates two key empirically-verified predictions: (i) males in relatively wealthy households within a caste who benefit less from the redistributive (surplus-maximizing) network will be more likely to migrate, and (ii) males in households facing greater rural income-risk (who benefit more from the insurance network) migrate less. Structural estimates show that small improvements in formal insurance decrease the spatial misallocation of labor by substantially increasing migration.

Date: 2015-10
New Economics Papers: this item is included in nep-ias, nep-mig and nep-ure
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Networks and Misallocation: Insurance, Migration, and the Rural-Urban Wage Gap (2016)
Working Paper: Networks and Misallocation: Insurance, Migration, and the Rural-Urban Wage Gap (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:crm:wpaper:1516

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