Regional insurance and migration

A dynamic model of migration is developed to study whether labor mobility c an hedge people against region-specific shocks, making private or public in surance redundant. The model adopts a novel timing for migration, which is argued to be the time frame suitable for analyzing risk-sharing issues. It also innovates on the existing literature by solving individual migration t hrough convexification of the set of actions. The results show that the rol e of migration as an insurance mechanism is small: labor mobility cannot fu lly remove income differentials between regions. It is also shown that a fi scal stabilization scheme is, in general, optimal; moreover, any pure risk- sharing mechanism has no influence on migration flows.