Risk Sharing and Internal Migration

Over the past 2 decades, more than half the population in our sample of rural Tanzanians has migrated out of their home communities. We hypothesize that this powerful current of internal migrants is changing the nature of traditional institutions such as informal risk sharing. Mass internal migration has created geographically disperse networks, on which we collected detailed panel data. By quantifying how shocks and consumption covary across linked households, we show that, while both migrants and stayers insure negative shocks to stayers, there is no one in the network who insures the migrants’ negative shocks. While migrants do share some of their positive shocks, they ultimately end up nearly twice as rich as those at home by 2010, despite practically identical baseline positions in the early nineties before migration. Taken together, these findings point to migration as a risky but profitable endeavor, for which the migrant will bear the risk and also reap most of the benefit. We interpret these results within the existing literature on risk sharing and on the disincentive effects of redistributive norms.