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Managing Migration through Quotas: an Option-theory Perspective

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Author Info
Michele Moretto (University of Padua)
Sergio Vergalli (University of Brescia)

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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), also by using immigration quotas. On the other hand, there is an increase of regularization, i.e., European policies are becoming less tight. Our aim here is to study these counterbalanced and opposite policies in European immigration legislation in a unified framework . To do this, we have used a real option approach to migration choice that assumes that the decision to migrate can be described as an irreversible investment decision where quotas represent an upper bound limit. Our results show that the paradox of counterbalancing immigration policies is not odd but it could be in line with an optimal policy to control migration inflow. In particular, we show that if the government controls the information related to the immigration quota system it could delay the mass entry of immigrants maintaining, in the long run, the required immigration stock and controlling the flows in the short-run.

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Publisher Info
Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2008.51.

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Date of creation: Jun 2008
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Handle: RePEc:fem:femwpa:2008.51

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Related research
Keywords: Immigration; Real Option; Quota System;

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Find related papers by JEL classification:
F22 - International Economics - - International Factor Movements and International Business - - - International Migration
J61 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Geographic Labor Mobility; Immigrant Workers
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
R23 - Urban, Rural, and Regional Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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  1. Holger Feist, 1998. "Wage-distance regulation in social-welfare programs: An option-theory perspective," Journal of Economics, Springer, vol. 68(3), pages 271-293, October. [Downloadable!] (restricted)
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  4. Burda,M.C., 1995. "Migration and the Option Value of Waiting," Papers 597, Stockholm - International Economic Studies.
    Other versions:
  5. Tito Boeri & Herbert Brücker, 2005. "Why are Europeans so tough on migrants?," Economic Policy, CEPR, CES, MSH, vol. 20(44), pages 629-703, October. [Downloadable!] (restricted)
  6. Epstein, Gil S. & Gang, Ira N., 2004. "Ethnic Networks and International Trade," IZA Discussion Papers 1232, Institute for the Study of Labor (IZA). [Downloadable!]
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  7. Steven R. Grenadier, 2002. "Option Exercise Games: An Application to the Equilibrium Investment Strategies of Firms," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 15(3), pages 691-721.
  8. Sergio Vergalli, 2007. "Entry and Exit Strategies in Migration Dynamics," Working Papers 0701, University of Brescia, Department of Economics. [Downloadable!]
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  9. Sergio Vergalli, 2008. "The Role of Community in Migration Dynamics," LABOUR, CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd, vol. 22(3), pages 547-567, 09. [Downloadable!] (restricted)
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  10. Avinash K. Dixit & Robert S. Pindyck, 1998. "Expandability, Reversibility, and Optimal Capacity Choice," NBER Working Papers 6373, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Timothy J. Hatton, 2004. "Seeking asylum in Europe," Economic Policy, CEPR, CES, MSH, vol. 19(38), pages 5-62, 04. [Downloadable!] (restricted)
  12. Sergio Vergalli & Michele Moretto, 2005. "Migration Dynamics," Working Papers 2005.108, Fondazione Eni Enrico Mattei. [Downloadable!]
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  13. Gil Epstein & Shmuel Nitzan, 2006. "The struggle over migration policy," Journal of Population Economics, Springer, vol. 19(4), pages 703-723, October. [Downloadable!] (restricted)
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  14. Leahy, John V, 1993. "Investment in Competitive Equilibrium: The Optimality of Myopic Behavior," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 1105-33, November. [Downloadable!] (restricted)
  15. Bartolini, Leonardo, 1995. "Foreign investment quotas and rent extraction under uncertainty," Journal of International Economics, Elsevier, vol. 38(1-2), pages 25-49, February. [Downloadable!] (restricted)
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