Kaivan Munshi Brown University Mark Rosenzweig Yale University Why is Mobility in India So Low? Social Insurance, Inequality, and Growth Kaivan Munshi Brown University Mark Rosenzweig Yale University

Introduction Low levels of mobility in India Permanent migration rates of men out of origin villages as low as 8.7% in 1999 Urbanization much lower than comparable countries, e.g. Indonesia, Nigeria, China Among 25-40-year olds, marriage outside sub-caste was as low as 7.6% in Mumbai in 2001, 6.2% in South Indian tea plantations in 2003, and 5.8% for rural India in 1999

Why is mobility in India so low? Rural casted-based networks, which have been active in smoothing consumption for centuries, restrict mobility Marriage ties increase social interactions within the sub-caste and so exclusion from these interactions serves as a natural mechanism to sustain cooperative behavior These punishments are less effective for individuals who have out-married or out-migrated, preventing them from credibly committing to cooperation ex post

Each individual thus has 2 choices Participate in network and forego additional utility that comes with mobility Out-marry and out-migrate at the cost of losing the services of the network Without access to alternative consumption-smoothing arrangements of comparable quality, most households appear to favor option 1

Testing hypothesis that caste networks restrict mobility Step 1: Establish the importance and efficiency of caste-based networks 25% of households in 1982 and 20% in 1999 participated in the insurance arrangement Caste loans are most useful for meeting contingencies and smoothing consumption Caste loans are a preferred form of credit 20% of caste loans received without interest or collateral

Step 2: Link participation and mobility Green Revolution associated with permanent increase in inequality within sub-castes Show theoretically that net benefit from participation in network would have declined the most for relatively wealthy households Show empirically that those households are indeed less likely to participate in the network and more likely to out-marry and out-migrate

The model 2 households smoothing consumption over time Full commitment: ratio of marginal utilities  is constant across all states of nature Limited commitment:  lies within an interval in each state of nature  in any period will remain unchanged in the next period if it lies within that period’s interval If not, it will shift to nearest boundary of that interval

Extension to the standard model There are 2 technology regimes and household 2’s income increases by y in each state in regime 2 Households decide at the beginning of each regime whether or not to participate This decision depends on the surplus from participation over autarky

Comparative statistics Suppose that first-best is achieved in regime 1 and that the initial  in regime 2 is set at same level in regime 1 Then household 1’s surplus from participation will increase in regime 2 as long as punishments exceed a threshold that is increasing in y Numerical solutions indicate that this result holds even when first-best cannot be achieved

Empirical analysis Change in participation: Change in out-marriage or out-migration: Use the interaction of irrigated land in village and access to HYV at onset of Green Revolution, scaled up by land area, as instruments

Conclusion Fact that mobility did not increase substantially despite increase in within-caste inequality indicates that there was little slack in collective punishments Implies that caste-based insurance arrangement should be especially vulnerable to improvements in outside options