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SUMMARY:Empirical Micro Group Workshop: Risk\,Insurance and Wages in Gener
 al Equilibrium (22 May) - Prof. Mark Rosenzweig (Yale University)  
DTSTART:20140522T133000Z
DTEND:20140522T150000Z
UID:TALK52707@talks.cam.ac.uk
CONTACT:Cambridge-INET Institute\, Faculty of Economics
DESCRIPTION:We estimate the general-equilibrium labor market effects of a 
 large-scale randomized\nintervention in which we designed and marketed a r
 ainfall index insurance product across\nthree states in India. Marketing a
 gricultural insurance to both cultivators and to agricultural\nwage labore
 rs allows us to test a general-equilibrium model of wage determination in 
 settings\nwhere households supplying labor and households hiring labor fac
 e weather risk. Consistent\nwith theoretical predictions\, we find that bo
 th labor demand and equilibrium wages become\nmore rainfall sensitive when
  cultivators are offered rainfall insurance\, because insurance\ninduces c
 ultivators to switch to riskier\, higher-yield production methods. The sam
 e insurance\ncontract offered to agricultural laborers smoothes wages acro
 ss rainfall states by inducing\nchanges in labor supply. Policy simulation
 s based on our estimates suggest that selling\ninsurance only to land-owni
 ng cultivators and precluding the landless from the insurance\nmarket (whi
 ch is the current regulatory practice in India and other developing countr
 ies)\,\nmakes wage laborers worse off relative to a situation where insura
 nce does not exist at all.\nThe general-equilibrium analysis reveals that 
 the welfare costs of current regulation are borne\nby landless laborers\, 
 who represent the poorest segment of society and whose risk\nmanagement op
 tions are the most limited. 
LOCATION:Keynes Room\, Faculty of Economics\, Cambridge
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