Risk, Insurance and Wages in General Equilibrium
نویسندگان
چکیده
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 current regulation are borne by landless laborers, who represent the poorest segment of society and whose risk management options are the most limited. JEL Codes: O17, O13, O16
منابع مشابه
EÆcient Unemployment Insurance
This paper constructs a tractable general equilibrium model of search with risk-aversion. An increase in risk-aversion reduces wages, unemployment and investment. Unemployment insurance (UI) has the opposite e ect: insured workers seek high wage jobs with high unemployment risk. An economy with risk-neutral workers achieves maximal output without any UI, but an economy with risk-averse workers ...
متن کاملDigitized by the Internet Archive in 2011 with Funding from Boston Library Consortium Iviember Libraries
This paper argues that moderate unemployment insurance not only reduces the uncertainty faced by risk-averse workers but also improves efficiency and raises output. We develop a model in which the decentralized equilibrium is inefficient without unemployment insurance, because the labor market endogenously creates jobs that provide risk-averse workers with low unemployment risk and low wages. E...
متن کاملOn the Optimal Provision of Social Insurance Progressive Taxation versus Education Subsidies in General Equilibrium
In this paper we compute the optimal tax and education policy transition in an economy where progressive taxes provide social insurance against idiosyncratic wage risk, but distort the education decision of households. Optimally chosen tertiary education subsidies mitigate these distortions. We highlight the importance of two different channels throughwhich academic talent is transmitted across...
متن کاملRunning Out of Time: Limited Unemployment Benefits and Wage Dispersion
We study unemployment insurance (UI) in a general equilibrium environment in which unemployed workers only receive benefits for a finite length of time. Although all workers have identical productivity and leisure value, the random arrival of job offers creates ex-post differences with respect to their time remaining until benefit expiration. Firms, which are also homogenous, can exploit these ...
متن کاملOn the Optimal Provision of Social Insurance∗ Progressive Taxation versus Education Subsidies in General Equilibrum
In this paper we compute the optimal tax and education policy transition in an economy where progressive taxes provide social insurance against idiosyncratic wage risk, but distort the education decision of households. Optimally chosen tertiary education subsidies mitigate these distortions. We highlight the importance of two different channels through which academic talent is transmitted acros...
متن کامل