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Networks Working Group - Kaivan Munshi (Economics, Cambridge)

When Nov 07, 2014
from 01:00 PM to 02:00 PM
Where Keynes Room
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Speaker: Kaivan Munshi

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

Authors: Kaivan Munshi and Mark Rosenzweig,

We provide an explanation for large spatial wage disparities and low male migration in India that is 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 predictions, which we verify empirically: (i) relatively wealthy households within the caste who benefit less from the redistributive (surplus-maximizing) network will be more likely to have migrant members, and (ii) households facing greater rural income-risk (who benefit more from the insurance network) are less likely to have migrant members. Structural estimates of the model show that even small improvements in formal insurance decrease the spatial misallocation of labor by substantially increasing migration.

Paper: download pdf