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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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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9485.2009.00520.x
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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. & Nitzan, Shmuel, 2005. "The Struggle over Migration Policy," IZA Discussion Papers 1533, Institute for the Study of Labor (IZA).
  2. Avinash Dixit, 1992. "Irreversible investment with uncertainty and scale economies," LSE Research Online Documents on Economics 19372, London School of Economics and Political Science, LSE Library.
  3. Moretto, Michele, 2008. "Competition and irreversible investments under uncertainty," Information Economics and Policy, Elsevier, vol. 20(1), pages 75-88, March.
  4. 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.
  5. Sergio Vergalli, 2006. "The Role of Community in Migration Dynamics," Working Papers 2006.4, Fondazione Eni Enrico Mattei.
  6. 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.
  7. Sergio Vergalli, 2006. "Entry and Exit Strategies in Migration Dynamics," Working Papers 2006.123, Fondazione Eni Enrico Mattei.
  8. Michele Moretto & Sergio Vergalli, 2005. "Migration dynamics," Working Papers ubs0507, University of Brescia, Department of Economics.
  9. Gil S. Epstein & Ira Gang, 2004. "Ethnic Networks and International Trade," Departmental Working Papers 200425, Rutgers University, Department of Economics.
  10. Burda,M.C., 1995. "Migration and the Option Value of Waiting," Papers 597, Stockholm - International Economic Studies.
  11. Cesare Dosi & Michele Moretto, 2001. "Is Ecolabelling a Reliable Environmental Policy Measure?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 18(1), pages 113-127, January.
  12. Bauer, Thomas K. & Epstein, Gil S. & Gang, Ira N., 2002. "Herd Effects or Migration Networks? The Location Choice of Mexican Immigrants in the U.S," IZA Discussion Papers 551, Institute for the Study of Labor (IZA).
  13. Bartolini, Leonardo, 1995. "Foreign investment quotas and rent extraction under uncertainty," Journal of International Economics, Elsevier, vol. 38(1-2), pages 25-49, February.
  14. Mahmudul Anam & Shin-Hwan Chiang & Lieng Hua, 2008. "Uncertainty and International Migration: An Option Cum Portfolio Model," Journal of Labor Research, Springer, vol. 29(3), pages 236-250, September.
  15. Tito Boeri & Herbert Brücker, 2005. "Why are Europeans so tough on migrants?," Economic Policy, CEPR;CES;MSH, vol. 20(44), pages 629-703, October.
  16. 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.
  17. 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.
  18. John V. Leahy, 1993. "Investment in Competitive Equilibrium: The Optimality of Myopic Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 1105-1133.
  19. Timothy J. Hatton, 2004. "Seeking asylum in Europe," Economic Policy, CEPR;CES;MSH, vol. 19(38), pages 5-62, 04.
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