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Managing Migration through Conflicting Policies: an Option-theory Perspective

  • Michele Moretto
  • Sergio Vergalli

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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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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  1. 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.
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  4. Moretto, Michele, 2008. "Competition and irreversible investments under uncertainty," Information Economics and Policy, Elsevier, vol. 20(1), pages 75-88, March.
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  10. Michele Moretto & Sergio Vergalli, 2005. "Migration dynamics," Working Papers ubs0507, University of Brescia, Department of Economics.
  11. 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.
  12. Sergio Vergalli, 2008. "The Role of Community in Migration Dynamics," LABOUR, CEIS, vol. 22(3), pages 547-567, 09.
  13. 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.
  14. Bartolini, Leonardo, 1995. "Foreign investment quotas and rent extraction under uncertainty," Journal of International Economics, Elsevier, vol. 38(1-2), pages 25-49, February.
  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. Cesare Dosi & Michele Moretto, 1999. "Is Ecolabelling a Reliable Environmental Policy Measure?," Working Papers 1999.9, Fondazione Eni Enrico Mattei.
  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. Epstein, Gil S. & Nitzan, Shmuel, 2005. "The Struggle over Migration Policy," IZA Discussion Papers 1533, Institute for the Study of Labor (IZA).
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