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

Kaivan Munshi and Mark Rosenzweig

American Economic Review, 2016, vol. 106, issue 1, 46-98

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. (JEL G22, J31, J61, O15, O18, R23, Z13)

JEL-codes: G22 J31 J61 O15 O18 R23 Z13 (search for similar items in EconPapers)
Date: 2016
Note: DOI: 10.1257/aer.20131365
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Citations: View citations in EconPapers (234)

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Related works:
Working Paper: Networks and Misallocation: Insurance, Migration, and the Rural-Urban Wage Gap (2015)
Working Paper: Networks and Misallocation: Insurance, Migration, and the Rural-Urban Wage Gap (2015)
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