Presented By: Economic Development Seminar
Economic Development
Risk Mitigation and Selection Under Forward Contracts: 19th-Century Indian Indentureship presented by Alexander Persaud, University of Michigan
Abstract:
Uncertainty about economic conditions, not merely average wage differentials between markets, affects migration. Ex-ante forward, guaranteed contracts can reduce uncertainty for migrants. I combine aspects of the two and ask, how does origin-market uncertainty affect out-migration under forward contracts? I model migration under forward contracts and then turn to new, unique microdata on roughly 250,000 Indian indentured servants sent around the world under forward contracts. The migration decision is consistent with migrating to escape price volatility (my main measure of uncertainty). A one-standard deviation increase in price volatility increases extensive margin migration by 2% and the intensive margin by 5%. I find compositional differences by social network (caste), with networks responding differently to volatility. Lower-caste people respond more to prices, wages, and volatility, and higher-caste people are more able to smooth against volatility. This is suggestive of caste-specific insurance networks. Finally, volatility exerts a persistent negative effect on the return migration choice. A one-standard deviation in volatility at the time of departure lowers return migration (within roughly 10 years) by 5%.
Uncertainty about economic conditions, not merely average wage differentials between markets, affects migration. Ex-ante forward, guaranteed contracts can reduce uncertainty for migrants. I combine aspects of the two and ask, how does origin-market uncertainty affect out-migration under forward contracts? I model migration under forward contracts and then turn to new, unique microdata on roughly 250,000 Indian indentured servants sent around the world under forward contracts. The migration decision is consistent with migrating to escape price volatility (my main measure of uncertainty). A one-standard deviation increase in price volatility increases extensive margin migration by 2% and the intensive margin by 5%. I find compositional differences by social network (caste), with networks responding differently to volatility. Lower-caste people respond more to prices, wages, and volatility, and higher-caste people are more able to smooth against volatility. This is suggestive of caste-specific insurance networks. Finally, volatility exerts a persistent negative effect on the return migration choice. A one-standard deviation in volatility at the time of departure lowers return migration (within roughly 10 years) by 5%.
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