Working Paper: NBER ID: w22159
Authors: Melanie Morten
Abstract: When people can self-insure via migration, they may have less need for informal risk sharing. At the same time, informal insurance may reduce the need to migrate. To understand the joint determination of migration and risk sharing I study a dynamic model of risk sharing with limited commitment frictions and endogenous temporary migration. First, I characterize the model. I demonstrate theoretically how migration may decrease risk sharing. I decompose the welfare effect of migration into the change in income and the change in the endogenous structure of insurance. I then show how risk sharing alters the returns to migration. Second, I structurally estimate the model using the new (2001-2004) ICRISAT panel from rural India. The estimation yields: (1) improving access to risk sharing reduces migration by 21 percentage points; (2) reducing the cost of migration reduces risk sharing by 8 percentage points; (3) contrasting endogenous to exogenous risk sharing, the consumption-equivalent gain from reducing migration costs is 18.9 percentage points lower. Third, I introduce a rural employment scheme. The policy reduces migration and decreases risk sharing. The welfare gain of the policy is 55-70% lower after household risk sharing and migration responses are considered
Keywords: migration; risk sharing; welfare; rural India
JEL Codes: D12; D52; D91; O12; R23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Migration (F22) | Risk Sharing (D16) |
| Access to Risk Sharing (G52) | Migration (F22) |
| Cost of Migration (F22) | Risk Sharing (D16) |
| Cost of Migration (F22) | Consumption Equivalent Gain (D11) |
| Rural Employment Scheme (R19) | Migration (F22) |
| Rural Employment Scheme (R19) | Risk Sharing (D16) |