Networks and Misallocation: Insurance, Migration, and the Rural-Urban Wage Gap
Kaivan Munshi, Mark Rosenzweig
American Economic Review · 2016 · Volume 106 · Issue 1
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)
Keywords
Insurance, Insurance Companies, Actuarial Studies, Wage Level and Structure, Wage Differentials, Geographic Labor Mobility, Immigrant Workers, Economic Development: Human Resources, Human Development, Income Distribution, Migration, Economic Development: Urban, Rural, Regional, and Transportation Analysis, Housing, Infrastructure, Urban, Real Estate, and Transportation Economics: Regional Migration, Regional Labor Markets, Population, Neighborhood Characteristics, Economic Sociology, Economic Anthropology, Social and Economic Stratification
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