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Offshoring, migrants and native workers: the optimal choice under asymmetric information

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  • Gianluca OREFICE

Abstract

This paper presents a theoretical model about the optimal choice for a firm between offshoring and hiring immigrant workers under asymmetric information about their ability and effort in production (symmetric information is assumed about home born workers). When a domestic firm hires an immigrant it doesn't know his ability; while when the firm goes abroad it uses local agent in order to buy additional information about workers, thus enforceable contracts may be set. We show that it is optimal for firms to produce low quality products offshoring the production abroad, while intermediate quality level products will be produced at home using foreign born workers. Finally, high quality products will be produced using native workers.

Suggested Citation

  • Gianluca OREFICE, 2010. "Offshoring, migrants and native workers: the optimal choice under asymmetric information," Departmental Working Papers 2010-016, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
    • Handle: RePEc:mil:wpdepa:2010-016
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    More about this item

    Keywords

    Immigrants; offshoring; asymmetric information;
    All these keywords.

    JEL classification:

    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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