1. 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

2. 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 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

3. 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

4. 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

5. 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

7. 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

8. 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

9. 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

10. 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

12. 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

15. 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