Asymmetric Information About Migrant Earnings And Remittance Flows

Abstract

We examine asymmetric information about migrant earnings and its implications for remittance behavior using a sample of Indian households with husbands working overseas in Qatar. On average, wives underreport their husbands' income and underreporting is more prevalent in households with higher earning migrants. The discrepancy in earning reports is strongly correlated with variation in remittances: greater underreporting by wives is associated with lower remittances. We develop an exchange model of remittances with asymmetric information and costly state verification. The optimal remittance contract prescribes a threshold for remittances that invites verification only if unmet. The model's predictions closely match our empirical findings.JEL classification: D13, D82, F22, F24 Article households in El Salvador if their families were unaware of it. 1 This incipient evidence indicates that informational asymmetries about migrants' economic conditions can be a significant factor of remittance behavior, which, even though recognized in the literature (see Docquier 2006, 1143), has hardly been studied. 2 This paper deals with informational asymmetry about migrant earnings and examines, theoretically and empirically, the impact of this asymmetry on remittance flows. Generally, the main obstacle for conducting an empirical analysis is the absence of data on informational asymmetries within split households, which surveys of migrant or household alone cannot possibly provide. We offer a new solution to this problem. We assess informational asymmetries about income earned abroad by collecting migrants' reports about their earnings and contrasting these reports with accounts of their earnings collected from the remittance recipients. To our knowledge, this is one of the first few studies using a matched household dataset that collects cross-reports on variables of interest. 3 We are able to offer new evidence of substantial asymmetry in information within split households. In our representative sample of South Indian migrant households, where husbands are migrant workers in Qatar and wives remain behind in Kerala, India, wives report on average only about 79 percent of their husbands' earnings, which we show is unrelated to any reporting bias. We find that underreporting is not uniform across households-it is more prevalent in households with higher earning migrants. In particular, we observe that the reported earnings ratio-the ratio of the wife's report of her husband's earnings to that of her husband's-decreases in migrant earnings. Importantly, we find that asymmetric information about the migrant's income is strongly correlated with variation in remittances: all else equal, the lower the reported earnings ratio, the smaller the annual remittance sent home.By design, existing remittance models, mainly based on the symmetric information assumption, are not able to account for any differences in cross-reports and, consequently, cannot explain the observed relationship between the reported earnings ratio and remittanc...

Asymmetric Information and Remittances: Evidence from Matched Administrative Data

“…where we include the interaction between time in the UAE, denoted by T imeinU AE, and a timeinvariant indicator for whether the person experienced a positive or negative correlation between time in the UAE and earnings, denoted by I(P osChange) and I(N egChange), respectively. 34 More specifically, the correlation is calculated with the full earnings sample as the within-person correlation coefficient between all of the observations of time and earnings for individuals who had three or more months of earnings data. We also include individual fixed effects and indicators for month and for year.…”

“…Seshan and Zubrickas (2014) interview both male migrants and their wives at home and find evidence that husbands working in Qatar underreport their earnings by about 20% to their wives at home in India. De Weerdt, Genicot and Mesnard (2014) find substantial information asymmetries over assets in family networks and that the discrepancies are positively correlated with physical distance.…”

Get Rich or Die Tryin': Perceived Earnings, Perceived Mortality Rate and the Value of a Statistical Life of Potential Work-Migrants from Nepal

“…Moreover, previous migrants may also provide biased information. They may lie about their earnings to their social network if they fear social taxation, or feel pressure to maintain any social prestige they gain from having migrated abroad (as in McKenzie, Gibson, and Stillman, 2013, Seshan and Zubrickas, 2015, and Sayad, Macey, and Bourdieu, 2004. This has fueled concern among policymakers that potential migrants may overestimate their earning potential abroad.…”

“…6 This paper also contributes to the relatively scant literature seeking to quantify the extent of misinformation on earnings in context of international migration. McKenzie, Gibson, and Stillman (2013) and Seshan and Zubrickas (2015) find that those who do not migrate, including family members, have different expectations about earnings abroad. However, contrary to the current study, these studies find that potential migrants and their family members underestimate the potential earnings from migration.…”

“…It also asked the returnees the actual earnings they made during their migration episode. Other than the fact that this data was collected almost six years ago, it also suffers from reporting biases of the household members, and reflects the misinformation within the household as highlighted inSeshan and Zubrickas (2015).…”