# **6.2 Estimates of VSL for inexperienced potential migrants**

Both the logarithmic and the levels specifications estimate migration elasticities that are quite similar across specifications. As Table 7 shows, across all three measures of migration, an increase in (logarithm of) expected mortality rate lowers probability of migration and an increase in (logarithm of) expected earnings increases migration probability as expected (top panel). For the preferred measure of migration (Migrated-P), an increase in one percent in expected mortality rate reduces migration by 0.16 percentage points (column 1). This translates to an elasticity of migration to expected mortality risk of 0.5. Similarly, an increase in one percent in expected earnings increases migration by 0.22 percentage points, which translates to an elasticity of migration to expected earnings of 0.7. The bottom panel of the table estimates similar elasticities with the levels specification. An increase in expected mortality rate by 1 percentage points reduces migration rate by 6 percentage points (column 1). This point estimate translates to an elasticity of 0.5, which is exactly the same elasticity from the logarithmic specification. An increase in expected earnings by $1000 increases migration rate by 1.1 percentage points which implies an elasticity of 0.5 which is only slightly smaller compared to the elasticity estimated using the logarithmic specification. Since expected mortality and expected earnings are more likely to follow a log-normal distribution than a normal distribution, I prefer the estimates with logarithms rather than levels.<sup>36</sup> These estimates suggest that misinformation has actually lowered the migration rate because potential migrants overestimate mortality more than they overestimate earnings. If inexperienced potential migrants had true information on the mortality risk (1.3 per 1000 for two-year period instead of 27.57), migration would increase by 47 percentage points from its current level (assuming the effect are the same for large changes in perceptions). Similarly, if inexperienced potential migrants had the same net earnings expectations as the experienced ones ($9,660 instead of $12,270), migration would decrease by 5 percentage points. The net effect on migration would therefore be an increase of 42 percentage points – a remarkable 140 percent. Even assuming a much lower actual earnings of $6,000 for the inexperienced (since the expectations of the experienced are likely to be an upper bound on the counterfactual earnings), migration would still go up by by 31 percentage points (102 percent from the current level).

The VSL implied by this choice is the ratio of the marginal effect of the expectations on migration decision. For the logarithmic specifications, the estimates of VSL range from $0.28 million to $0.63 million, depending upon the different measures of migration used (top panel, Table 7). The VSL using the preferred measure of migration (Migrated-P) is estimated more precisely than others but the estimated magnitudes are quite similar. For the levels specification, the estimates of the VSL range from $0.43 million to $2.35 million for various measures of migration (bottom panel). The levels specification yields larger and noisier estimates than the logarithmic specifications. Except for the measure of migration with attrition problem (Migrated-B), all the estimates are statistically different from zero and qualitatively similar to their logarithmic counterparts. The VSL from the preferred measure with the levels specification is $0.54 million and its logarithmic counterpart is within one standard error from this estimate.<sup>37</sup>

## **Comparison with estimates in the literature**

It is hard to compare these estimates of VSL, estimated for the pool of potential international migrants from Nepal, to most estimates in the literature, which apply to the US labor market. As reviewed in Viscusi and Aldy (2003) and Cropper, Hammitt, and Robinson (2011), typical US estimates range from $5.5 million to $12.4 million (in 2014 US$).<sup>38</sup> The preferred estimates in this study ranges from $0.28 million to $0.54 million ($0.97 million to $1.85 million in PPP$).<sup>39</sup> It is reasonable to expect a lower VSL in the context of Nepal compared to the US as the average Nepali potential migrant has a much lower income: US GDP per capita is 23 times the GDP per capita of Nepal in PPP terms. In fact, several studies find the developing country estimates of the VSL are in general lower than the estimates from

> 36I cannot reject the null of normality for the log of both expectations in the untreated group using a Kolmogorov-Smirnov test. However, the more stringent forms of the test reject normality.

> 37The 2-SLS estimation of equation (2) produces very similar point estimates for VSL but are estimated with larger standard errors (results in Appendix Table A.4).

> 38Deflated using Urban CPI series.

> 39Using PPP conversion factor (US$ to PPP$ for Nepal) of 3.45 from The World Bank.

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