Migration and Informal Insurance
79 Pages Posted: 15 Jul 2019 Last revised: 17 Jul 2019
Date Written: July 14, 2019
Do new migration opportunities for rural households change the nature and extent of informal risk sharing? We experimentally document that randomly oﬀering poor rural households subsidies to migrate leads to a 40% improvement in risk sharing in their villages. We explain this ﬁnding using a model of endogenous migration and risk sharing. When migration is risky, the network can facilitate migration by insuring that risk, which in turn crowds-in risk sharing when new migration opportunities arise. We estimate the model and ﬁnd that welfare gains from migration subsidies are 42% larger, compared with the welfare gains without spillovers, once we account for the changes in risk sharing. Our analysis illustrates that (a) ignoring the spillover eﬀects on the network gives an incomplete picture of the welfare eﬀects of migration, and (b) informal risk sharing may be an essential determinant of the takeup of new income-generating technologies.
Keywords: Informal Insurance, Migration, Bangladesh, RCT
JEL Classification: D12, D91, D52, O12, R23
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