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• [P691] Labor Mobility, Goods Tradability, and Efficient Allocation of Disaster Risk
  Author(s): Tao Ye, Muneta Yokomatsu, Norio Okada
  
  

  Abstract
  In the face of income risk induced by natural disasters and market fluctuation, more and more farming households are choosing to cut production plan and get access to alternative income sources from off-farm jobs. Such a shift in farmers' decision-making has formed a shrinking agriculture sector, which is believed to do harm for the development of the entire economy. This paper uses a dual-economy model with inter-sectoral flow of labor and commodity to describe such kind of phenomenon and discuss corresponding government policies. The model shows that we are having larger numbers of farming households leaving for urban sectors than the social optimal one if there is neither government redistributive policy nor disaster insurance market. Then government policy is expected to control the number of migrants. The equilibrium achieved by disaster insurance (Malinvaud-Arrow Insurance) is sub-optimum when goods tradability is imperfect. In this sense, government intervention is needed to improve the inefficient equilibrium, either in the form of lump-sum transfer or subsidy system on insurance premium. The discussion on government intervention also partially justifies popular government-sponsored private crop insurance programs being adopted in many countries.

  
   

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