Migration and Informal Insurance: Evidence from a Randomized Controlled Trial and a Structural Model

Abstract

We document that an experimental intervention offering transport subsidies for poor rural households to migrate seasonally in Bangladesh improved risk sharing. A theoretical model of endogenous migration and risk sharing shows that the effect of subsidizing migration depends on the underlying economic environment. If migration is risky, a temporary subsidy can induce an improvement in risk sharing and enable profitable migration. We estimate the model and find that the migration experiment increased welfare by 12.9%. Counterfactual analysis suggests that a permanent, rather than temporary, decline in migration costs in the same environment would result in a reduction in risk sharing.

The Welfare Effects of Encouraging Rural–Urban Migration

“…Our paper contributes most directly to a recent literature on the economics of rural–urban migration in the developing world. Morten (2019) and Meghir, Mobarak, Mommaerts, and Morten (2022) also emphasize the links between insurance and seasonal migration, though their focus is mostly on network effects and spillovers from individual migration decisions. Neither of those studies explores on the role of migrant selection by asset levels or nonmonetary migration costs, or compares market outcomes to the efficient migration levels.…”

Trust in Risk Sharing: A Double-Edged Sword

“…Even the evidence from the village insurance in poor countries shows that the size of the 24 The prediction of the double-edged impact of trust on risk sharing is also consistent the high degree of risk sharing in poor, rural village economies in developing countries (see e.g. Townsend (1994), Ligon, Thomas, and Worrall (2002) or Meghir, Mobarak, Mommaerts and Morten (2022)) versus the relatively lower degree of risk-sharing in richer economies (see e.g. Attanasio and Davis (1996) or Altonji, Hayashi, and Kotlikoff (1997)).…”

Growing Apart: Declining Within- and Across-Locality Insurance in Rural China

“…For example, Morten (2019) and Meghir, Mobarak, Mommaerts et al (2021) show that increased opportunities to migrate can help or hinder informal risk-sharing, depending on the riskiness of migration, and Ábrahám and Laczó (2018) show that a decline in the availability of a public storage technology (like a TVE) hinders the level of informal risk-sharing.…”

“…While the nature of our data prevents us from identifying the specific imperfections that prevent full risk sharing in the new environment, we stress the reduction in the importance of local TVEs and agriculture in the economy as well as the increase in migration to explain this shift. In this sense, our paper and findings relate to a literature that studies the effect of changes in the economic or policy environment on informal insurance, including migration incentives (Meghir, Mobarak, Mommaerts et al, 2021), aid programs (Angelucci and De Giorgi, 2009), savings accounts (Dupas, Keats, and Robinson, 2019), credit markets (Banerjee, Breza, Chandrasekhar et al, 2021), microfinance (Feigenberg, Field, and Pande, 2013), and formal insurance (Munshi and Rosenzweig, 2016). 3 As large panel datasets from developing countries become increasingly available, our framework has potentially wide application for further study of these issues.…”

“…In many developed countries, private (formal and informal) insurance contracts and public insurance systems (e.g., unemployment insurance programs) play a prominent role in insuring income risk. In less developed countries, with little access to formal insurance, informal risk sharing plays a larger role, typically within smaller groups such as villages (e.g., Kinnan and Townsend, 2012;Munshi and Rosenzweig, 2016;Morten, 2019;Meghir, Mobarak, Mommaerts et al, 2021). Many of these countries at some point experience a period of development and transformation of public and private institutions.…”