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

Author

Listed:
  • Kaivan Munshi

    () (University of Cambridge)

  • Mark Rosenzweig

    () (Yale University)

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.

Suggested Citation

  • Kaivan Munshi & Mark Rosenzweig, 2015. "Networks and Misallocation: Insurance, Migration, and the Rural-Urban Wage Gap," CReAM Discussion Paper Series 1516, Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London.
  • Handle: RePEc:crm:wpaper:1516
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    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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