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  3. American Economic Review
  4. January 2016
  5. Networks and Misallocation: Insurance, Migration, and the Rural-Urban Wage Gap

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

  • Kaivan Munshi
  • Mark Rosenzweig
American Economic Review
vol. 106, no. 1, January 2016
(pp. 46-98)
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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)

Citation

Munshi, Kaivan, and Mark Rosenzweig. 2016. "Networks and Misallocation: Insurance, Migration, and the Rural-Urban Wage Gap." American Economic Review, 106 (1): 46-98. DOI: 10.1257/aer.20131365

Additional Materials

JEL Classification

  • G22 Insurance; Insurance Companies; Actuarial Studies
  • J31 Wage Level and Structure; Wage Differentials
  • J61 Geographic Labor Mobility; Immigrant Workers
  • O15 Economic Development: Human Resources; Human Development; Income Distribution; Migration
  • O18 Economic Development: Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
  • R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics
  • Z13 Economic Sociology; Economic Anthropology; Social and Economic Stratification