Temporary Migration and Endogenous Risk Sharing in Village India

Melanie Morten

No 22159, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: When people can self-insure via migration, they may have less need for informal risk sharing. At the same time, informal insurance may reduce the need to migrate. To understand the joint determination of migration and risk sharing I study a dynamic model of risk sharing with limited commitment frictions and endogenous temporary migration. First, I characterize the model. I demonstrate theoretically how migration may decrease risk sharing. I decompose the welfare effect of migration into the change in income and the change in the endogenous structure of insurance. I then show how risk sharing alters the returns to migration. Second, I structurally estimate the model using the new (2001-2004) ICRISAT panel from rural India. The estimation yields: (1) improving access to risk sharing reduces migration by 21 percentage points; (2) reducing the cost of migration reduces risk sharing by 8 percentage points; (3) contrasting endogenous to exogenous risk sharing, the consumption-equivalent gain from reducing migration costs is 18.9 percentage points lower. Third, I introduce a rural employment scheme. The policy reduces migration and decreases risk sharing. The welfare gain of the policy is 55-70% lower after household risk sharing and migration responses are considered

JEL-codes: D12 D52 D91 O12 R23 (search for similar items in EconPapers)
Date: 2016-04
New Economics Papers: this item is included in nep-ias and nep-mig
Note: DEV
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Citations: View citations in EconPapers (63)

Published as Melanie Morten, 2019. "Temporary Migration and Endogenous Risk Sharing in Village India," Journal of Political Economy, vol 127(1), pages 1-46.

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