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Government policy under price uncertainty: A source of volatility in illegal immigration

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  • Mark G. Guzman
  • Joseph H. Haslag
  • Pia M. Orrenius

Abstract

This paper provides an alternative explanation for why illegal immigration can exhibit substantial volatility. We develop a model economy where migrants make decisions in the face of uncertain border enforcement and transfers from the host country. The uncertainty is extrinsic, a sunspot, and arises due to ambiguity regarding government policy; the sunspot manifests itself as uncertainty in the commodity price of money. Immigration volatility stems from both the trade-off between the marginal benefits and costs (transfers and enforcement) to migrating and the existence of a sunspot. Finally, we examine the impact of changes in government policies on migration levels.

Suggested Citation

  • Mark G. Guzman & Joseph H. Haslag & Pia M. Orrenius, 2015. "Government policy under price uncertainty: A source of volatility in illegal immigration," Canadian Journal of Economics, Canadian Economics Association, vol. 48(3), pages 940-962, August.
    • Handle: RePEc:cje:issued:v:48:y:2015:i:3:p:940-962
    DOI: 10.1111/caje.12164
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    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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