First best insurance scheme isnt possible look for the 2 nd best partial

First best insurance scheme isnt possible look for

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First best insurance scheme isn’t possible look for the 2 nd best - partial insurance. Limited enforcement Ppl put in effort, but will high output farmer remain willing to pay or ditch insurance & leave only the people who need it there M maximizes everyone's utility and so would be the first choice. High output must decide whether to put money in common pot and end up with middle amount M, or will he keep high individual high amount H? Utility of M is higher than the risky utility of being on your own - The longer you look ahead the larger your loss of dropping out of scheme will be. S: cost of deviating: social sanctions you will have in village In enforcement constraint must make sure that losses of leaving are larger than one time gain. Since hard to say if losses are larger than gains, must go for second best insurance scheme. For enforcement theory X and Y are closer than in previous theory. Downloaded by Vicky Gupta ([email protected]) lOMoARcPSD|3929542
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LHS and enforcement constraint Social capital and mutual insurance Strong social capital yields information on: Actual outcomes (deceit) Efforts and behavior ( moral hazard) Strong social capital and enforcement: Social sanctions Repeated interactions Altruism Downsides: Often local: covariance problems Exclusion of outsiders: almost by definition if it has strong definitions for who’s in group will exclude people. These are usually the marginal people Decreasing with mobility: break down of current systems No privacy (strong social control): social capital will control all aspects off peoples lives people feel very pressured. Reduced incentives to excel: people who do well feel compelled to share, and so ppl who do worse dont have incentives to do better bc they just get help from those who are well off Downloaded by Vicky Gupta ([email protected]) lOMoARcPSD|3929542
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INTERNATIONAL MIGRATION Economic migration: Not from perspective of rich countries but on migrants and their home countries Tertiary educated people are most likely to migrate from developing countries, and also likely to get high-skilled jobs. Foreign Direct Investment (FDI) is the largest financial flow. FDI (decr dramatically) and Official Development Aid (Stopped) responded the most strongly to the economic crisis, Remittances remained. A lot of migration between continents BUT most migrants move within their continent! Main determinants of migration: Wage gap between rich and poor countries (+) Poverty constraints in sending country (-) Size of the young adult share in sending country (+) Size of diaspora (foreign-born migrant stock) from sending country currently residing in receiving country (+) Political tensions in sending country (+) Income uncertainty (e.g. unemployment) in receiving country (-) Immigration regulations (-) If wage gap is too large people cannot afford to migrate. Poverty constraints are a negative determinant of migration ° Brain Drain: take smart country form one country and take it to their own and so drain the resources of the poorer countries.
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