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Managing Migration Through Conflicting Policies: An Option-Theory Perspective

  • Michele Moretto
  • Sergio Vergalli

We try to determine whether it is better for a government to tighten or relax limits for immigrants in order to control migration inflows. 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. Our results show that promoting uncertainty over migration limit may improve the government's control on migration inflows (quotas). In particular, we show that if the government controls the information related to the immigration stock it may 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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Article provided by Scottish Economic Society in its journal Scottish Journal of Political Economy.

Volume (Year): 57 (2010)
Issue (Month): s1 (07)
Pages: 318-342

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Handle: RePEc:bla:scotjp:v:57:y:2010:i:s1:p:318-342
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  1. Epstein, Gil S & Gang, Ira, 2004. "Ethnic Networks and International Trade," CEPR Discussion Papers 4616, C.E.P.R. Discussion Papers.
  2. Sergio Vergalli, 2007. "Entry and Exit Strategies in Migration Dynamics," Working Papers 0701, University of Brescia, Department of Economics.
  3. Dixit, Avinash, 1995. "Irreversible investment with uncertainty and scale economies," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 327-350.
  4. Bartolini, Leonardo, 1995. "Foreign investment quotas and rent extraction under uncertainty," Journal of International Economics, Elsevier, vol. 38(1-2), pages 25-49, February.
  5. Dixit, Avinash K. & Pindyck, Robert S. & Massachusetts Institute of Technology. Center for Energy and Environmental Policy Research., 2003. "Expandability, reversibility, and optimal capacity choice," Working papers 97-006WP., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  6. M. Moretto & Sergio Vergalli, 2008. "Migration dynamics," Journal of Economics, Springer, vol. 93(3), pages 223-265, 04.
  7. Burda, Michael C, 1995. "Migration and the Option Value of Waiting," CEPR Discussion Papers 1229, C.E.P.R. Discussion Papers.
  8. Ira N. Gang & Thomas Bauer & Gil S. Epstein, 2002. "Herd Effects or Migration Networks? The Location Choice of Mexican Immigrants in the U.S," Departmental Working Papers 200216, Rutgers University, Department of Economics.
  9. Sergio Vergalli, 2006. "The Role of Community in Migration Dynamics," Working Papers 2006.4, Fondazione Eni Enrico Mattei.
  10. Epstein, Gil S. & Nitzan, Shmuel, 2005. "The Struggle over Migration Policy," IZA Discussion Papers 1533, Institute for the Study of Labor (IZA).
  11. Michele Moretto, 2003. "Competition and Irreversible Investments under Uncertainty," Working Papers 2003.32, Fondazione Eni Enrico Mattei.
  12. 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.
  13. Timothy J. Hatton, 2004. "Seeking asylum in Europe," Economic Policy, CEPR;CES;MSH, vol. 19(38), pages 5-62, 04.
  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.
  15. Steven R. Grenadier, 2002. "Option Exercise Games: An Application to the Equilibrium Investment Strategies of Firms," Review of Financial Studies, Society for Financial Studies, vol. 15(3), pages 691-721.
  16. Tito Boeri & Herbert Brücker, 2005. "Why are Europeans so tough on migrants?," Economic Policy, CEPR;CES;MSH, vol. 20(44), pages 629-703, October.
  17. Cesare Dosi & Michele Moretto, 1999. "Is Ecolabelling a Reliable Environmental Policy Measure?," Working Papers 1999.9, Fondazione Eni Enrico Mattei.
  18. Hill, John K., 1987. "Immigrant decisions concerning duration of stay and migratory frequency," Journal of Development Economics, Elsevier, vol. 25(1), pages 221-234, February.
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