Option Values, Switches, and Wages: An Analysis of the Employment Guarantee Scheme in India
AbstractConsistent with real option theory, the authors argue that the value of the Employment Guarantee Scheme (EGS) in rural India and its impact on workers' behavior does not depend so much on its income supplementation as on enlargement of opportunities in the uncertain local labor market. The choice between the EGS and other activities is modeled in a dynamic optimization framework, taking into account a fixed wage rate and certainty of employment under the EGS and a stochastic wage rate under other activities. Specifically, volatility of wages in the rural labor markets has important implications for switches into the EGS and for concomitant welfare effects. Under such conditions, the higher the EGS wage, the greater is its attractiveness to relatively skilled and affluent workers, and for those already in it to continue. These and related predictions of the model are validated by panel data estimation. Copyright � 2009 The Authors. Journal compilation � 2009 Blackwell Publishing Ltd.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of Development Economics.
Volume (Year): 13 (2009)
Issue (Month): 2 (05)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=1363-6669
Other versions of this item:
- Katsushi Imai & Pasquale Scandizzo, 2003. "Option Values, Switches and Wages - An Analysis of the Employment Guarantee Scheme in India," Economics Series Working Papers 164, University of Oxford, Department of Economics.
- Katsushi Imai & Pasquale Scandizzo & Raghav Gaiha, 2004. "Option Values, Switches And Wages - An Analysis Of The Employment Guarantee Scheme In India," Royal Economic Society Annual Conference 2004 133, Royal Economic Society.
- D3 - Microeconomics - - Distribution
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- H5 - Public Economics - - National Government Expenditures and Related Policies
- I3 - Health, Education, and Welfare - - Welfare and Poverty
- J2 - Labor and Demographic Economics - - Demand and Supply of Labor
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