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Managing Migration through Conflicting Policies: an Option-theory Perspective

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  • Michele Moretto
  • Sergio Vergalli

Abstract

Recent European legislation on immigration has revealed a particular paradox on migration policies. On the one hand, the trend of recent legislation points to the increasing closure of frontiers (OECD 1999, 2001,2004), trying to limit the immigrants’ stock. On the other hand, there is an increase in regularization, i.e., European policies are becoming less tight. Our aim here is to develop a theoretical model that tries to explain if it is better for the government to tighten or relax limits for immigrants in order to control migration inflows better. To this end, we use a real option approach to migration choice that assumes that the decision to migrate can be described as an irreversible investment decision. In our model the government has in mind a specific upper bound on immigrants, and the policies adopted (admission requirements or regularizations) are signals for each potential migrant that reveal information about this limit. Our results show that promoting uncertainty over this migration upper bound may improve the government’s control on migration inflows (quotas). This could explain that the paradox of counterbalancing policies is not an odd evidence. In particular, we show that if the government controls the information related to the immigration stock it could delay the mass entry of immigrants, maintaining the required stock in the long run and controlling the flows in the short-run.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2731.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2731

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Keywords: immigration; real option;

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References

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  1. Bartolini, Leonardo, 1995. "Foreign investment quotas and rent extraction under uncertainty," Journal of International Economics, Elsevier, Elsevier, vol. 38(1-2), pages 25-49, February.
  2. Avinash K. Dixit & Robert S. Pindyck, 1998. "Expandability, Reversibility, and Optimal Capacity Choice," NBER Working Papers 6373, National Bureau of Economic Research, Inc.
  3. Epstein, Gil S. & Gang, Ira N., 2004. "Ethnic Networks and International Trade," IZA Discussion Papers 1232, Institute for the Study of Labor (IZA).
  4. Michele Moretto & Sergio Vergalli, 2007. "Migration Dynamics," "Marco Fanno" Working Papers 0053, Dipartimento di Scienze Economiche "Marco Fanno".
  5. Burda, Michael C, 1995. "Migration and the Option Value of Waiting," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1229, C.E.P.R. Discussion Papers.
  6. Holger Feist, 1998. "Wage-distance regulation in social-welfare programs: An option-theory perspective," Journal of Economics, Springer, Springer, vol. 68(3), pages 271-293, October.
  7. Avinash Dixit, 1992. "Irreversible investment with uncertainty and scale economies," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 19372, London School of Economics and Political Science, LSE Library.
  8. Sergio Vergalli, 2007. "Entry and Exit Strategies in Migration Dynamics," Working Papers, University of Brescia, Department of Economics 0701, University of Brescia, Department of Economics.
  9. Steven R. Grenadier, 2002. "Option Exercise Games: An Application to the Equilibrium Investment Strategies of Firms," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 15(3), pages 691-721.
  10. Gil Epstein & Shmuel Nitzan, 2006. "The struggle over migration policy," Journal of Population Economics, Springer, Springer, vol. 19(4), pages 703-723, October.
  11. Bauer, Thomas & Epstein, Gil S & Gang, Ira, 2002. "Herd Effects or Migration Networks? The Location Choice of Mexican Immigrants in the US," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3505, C.E.P.R. Discussion Papers.
  12. Leahy, John V, 1993. "Investment in Competitive Equilibrium: The Optimality of Myopic Behavior," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(4), pages 1105-33, November.
  13. Cesare Dosi & Michele Moretto, 1999. "Is Ecolabelling a Reliable Environmental Policy Measure?," Working Papers, Fondazione Eni Enrico Mattei 1999.9, Fondazione Eni Enrico Mattei.
  14. repec:wop:humbsf:1995-58 is not listed on IDEAS
  15. Sergio Vergalli, 2008. "The Role of Community in Migration Dynamics," LABOUR, CEIS, CEIS, vol. 22(3), pages 547-567, 09.
  16. Michele Moretto, 2003. "Competition and Irreversible Investments under Uncertainty," Working Papers, Fondazione Eni Enrico Mattei 2003.32, Fondazione Eni Enrico Mattei.
  17. Timothy J. Hatton, 2004. "Seeking asylum in Europe," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 19(38), pages 5-62, 04.
  18. Tito Boeri & Herbert Brücker, 2005. "Why are Europeans so tough on migrants?," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 20(44), pages 629-703, October.
  19. Hill, John K., 1987. "Immigrant decisions concerning duration of stay and migratory frequency," Journal of Development Economics, Elsevier, Elsevier, vol. 25(1), pages 221-234, February.
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Cited by:
  1. Sergio Vergalli, 2011. "Entry and Exit Strategies in Migration Dynamics," Journal of Labor Research, Springer, Springer, vol. 32(4), pages 362-389, December.
  2. Michael Funke & Yu-Fu Chen, 2009. "Booms, Recessions and Financial Turmoil: A Fresh Look at Investment Decisions under Cyclical Uncertainty," Quantitative Macroeconomics Working Papers, Hamburg University, Department of Economics 20908, Hamburg University, Department of Economics.
  3. Chen, Yu-Fu & Funke, Michael, 2009. "Booms, Recessions and Financial Turmoil: A Fresh Look at Investment Decisions under Cyclical Uncertainty," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2009-31, Scottish Institute for Research in Economics (SIRE).

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