IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Risk, Insurance and Wages in General Equilibrium

  • Mark Rosenzweig

    ()

    (Economic Growth Center, Yale University)

  • Ahmed Musfiq Mobarak

    ()

    (Economic Growth Center, Yale University)

We estimate the general-equilibrium labor market effects of a large-scale randomized intervention in which we designed and marketed a rainfall index insurance product across three states in India. Marketing agricultural insurance to both cultivators and to agricultural wage laborers allows us to test a general-equilibrium model of wage determination in settings where households supplying labor and households hiring labor face weather risk. Consistent with theoretical predictions, we find that both labor demand and equilibrium wages become more rainfall sensitive when cultivators are offered rainfall insurance, because insurance induces cultivators to switch to riskier, higher-yield production methods. The same insurance contract offered to agricultural laborers smoothes wages across rainfall states by inducing changes in labor supply. Policy simulations based on our estimates suggest that selling insurance only to land-owning cultivators and precluding the landless from the insurance market (which is the current regulatory practice in India and other developing countries), makes wage laborers worse off relative to a situation where insurance does not exist at all. The general-equilibrium analysis reveals that the welfare costs of curren regulation are borne by landless laborers, who represent the poorest segment of society and whose risk management options are the most limited.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.econ.yale.edu/growth_pdf/cdp1035.pdf
Download Restriction: no

Paper provided by Economic Growth Center, Yale University in its series Working Papers with number 1035.

as
in new window

Length: 45 pages
Date of creation: Dec 2013
Date of revision:
Handle: RePEc:egc:wpaper:1035
Contact details of provider: Postal: PO Box 8269, New Haven CT 06520-8269
Phone: (203) 432-3610
Fax: (203) 432-3898
Web page: http://www.econ.yale.edu/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Michael Kremer & Edward Miguel, 2007. "The Illusion of Sustainability," The Quarterly Journal of Economics, MIT Press, vol. 122(3), pages 1007-1065, 08.
  2. Abhijit V. Banerjee & Shawn Cole & Esther Duflo & Leigh Linden, 2007. "Remedying Education: Evidence from Two Randomized Experiments in India," The Quarterly Journal of Economics, MIT Press, vol. 122(3), pages 1235-1264, 08.
  3. Shawn Cole & Xavier Giné & Jeremy Tobacman & Petia Topalova & Robert Townsend & James Vickery, 2009. "Barriers to household risk management: evidence from India," Staff Reports 373, Federal Reserve Bank of New York.
  4. Banerjee, Abhijit & Duflo, Esther & Glennerster, Rachel & Kinnan, Cynthia, 2013. "The miracle of microfinance? Evidence from a randomized evaluation," CEPR Discussion Papers 9437, C.E.P.R. Discussion Papers.
  5. Emily Oster & Rebecca Thornton, 2009. "Determinants of Technology Adoption: Private Value and Peer Effects in Menstrual Cup Take-Up," NBER Working Papers 14828, National Bureau of Economic Research, Inc.
  6. Robert Jensen, 2000. "Agricultural Volatility and Investments in Children," American Economic Review, American Economic Association, vol. 90(2), pages 399-404, May.
  7. Edward Miguel & Michael Kremer, 2004. "Worms: Identifying Impacts on Education and Health in the Presence of Treatment Externalities," Econometrica, Econometric Society, vol. 72(1), pages 159-217, 01.
  8. Hongbin Cai & Yuyu Chen & Hanming Fang & Li-An Zhou, 2009. "Microinsurance, Trust and Economic Development: Evidence from a Randomized Natural Field Experiment," PIER Working Paper Archive 09-034, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  9. Karthik Muralidharan & Venkatesh Sundararaman, 2013. "The Aggregate Effect of School Choice: Evidence from a Two-stage Experiment in India," NBER Working Papers 19441, National Bureau of Economic Research, Inc.
  10. Crépon, Bruno & Duflo, Esther & Gurgand, Marc & Rathelot, Roland & Zamora, Philippe, 2012. "Do Labor Market Policies Have Displacement Effects? Evidence from a Clustered Randomized Experiment," CEPR Discussion Papers 9251, C.E.P.R. Discussion Papers.
  11. Seema Jayachandran, 2005. "Selling Labor Low: Wage Responses to Productivity Shocks in Developing Countries," UCLA Economics Online Papers 370, UCLA Department of Economics.
  12. Karlan, Dean S. & Osei, Robert & Osei-Akoto, Isaac & Udry, Christopher, 2012. "Agricultural Decisions after Relaxing Credit and Risk Constraints," CEPR Discussion Papers 9173, C.E.P.R. Discussion Papers.
  13. Rosenzweig, Mark R, 1978. "Rural Wages, Labor Supply, and Land Reform: A Theoretical and Empirical Analysis," American Economic Review, American Economic Association, vol. 68(5), pages 847-61, December.
  14. repec:cep:stieop:43 is not listed on IDEAS
  15. Robert Jensen, 2007. "The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector," The Quarterly Journal of Economics, MIT Press, vol. 122(3), pages 879-924, 08.
  16. James J. Heckman, 1991. "Randomization and Social Policy Evaluation," NBER Technical Working Papers 0107, National Bureau of Economic Research, Inc.
  17. Daron Acemoglu, 2010. "Theory, General Equilibrium and Political Economy in Development Economics," NBER Working Papers 15944, National Bureau of Economic Research, Inc.
  18. Manuela Angelucci & Giacomo De Giorgi, 2009. "Indirect Effects of an Aid Program: How Do Cash Transfers Affect Ineligibles' Consumption?," American Economic Review, American Economic Association, vol. 99(1), pages 486-508, March.
  19. Cai, Jing & de Janvry, Alain & Sadoulet, Elisabeth, 2013. "Social Networks and the Decision to Insure," MPRA Paper 46861, University Library of Munich, Germany.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:egc:wpaper:1035. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Louise Danishevsky)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.