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Munshi, K. and Rosenzweig, M.

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

CWPE1562

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 bycaste-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.

Author links: Kaivan Munshi  

PDF: http://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe1562.pdf

Open Access Link: https://doi.org/10.17863/CAM.5782


Published Version of Paper: Networks and misallocation: insurance, migration, and the rural-urban wage gap, Munshi, K. and Rosenzweig, M., American Economic Review (2016)

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