Working Paper: CEPR ID: DP16469
Authors: Catia Batista; David McKenzie
Abstract: We test the predictions of different classic migration theories by using incentivized laboratory experiments to investigate how potential migrants decide between working in different destinations. We test theories of income maximization, migrant skill-selection, and multi-destination choice as we vary migration costs, liquidity constraints, risk, social benefits, and incomplete information. We show the standard income maximization model of migration with selection on observed and unobserved skills leads to a much higher migration rate and more negative skill-selection than is obtained when migration decisions take place under more realistic assumptions. Second, we investigate whether the independence of irrelevant alternatives (IIA) assumption holds. We find it holds for most people when decisions just involve wages, costs, and liquidity constraints. However, once we add a risk of unemployment and incomplete information, IIA no longer holds for about 20 percent of our sample.
Keywords: migrant selection; destination choice; lab experiment; IIA property
JEL Codes: F22; O15; C91
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| standard income maximization model of migration (F16) | higher migration rate (F22) |
| standard income maximization model of migration (F16) | more negative skill selection (D91) |
| introduction of risk and liquidity constraints (D10) | lower migration rates (J61) |
| introduction of risk and liquidity constraints (D10) | less negative selection (C52) |
| unemployment risk and incomplete information (J64) | breakdown of IIA assumption (D57) |
| cost minimization (D61) | migration decisions (F22) |