A Role for Sunspots in Explaining Endogenous Fluctutations in Illegal Immigration

Joseph Haslag, Mark Guzman and Pia Orrenius

No 312, Working Papers from Department of Economics, University of Missouri

Abstract: In this paper we provide an alternative explanation for why illegal immigration can exhibit substantial fluctuations despite a constant wage gap. We develop a model economy in which migrants make decisions in the face of uncertain border enforcement and lump-sum transfers from the host country. The uncertainty is extrinsic in nature, a sunspot, and arises as a result of ambiguity regarding the commodity price of money. Migrants are restricted from participating in state-contingent insurance markets in the host country, whereas host country natives are not. We establish the existence of sunspot equilibria that are not mere randomizations over certainty equilibria. Volatility in migration flows stems from two distinct sources: the tension between transfers inducing migration and enforcement discouraging it and secondly the existence of a sunspot. Finally, we examine the impact of a change in tax/transfer policies by the government on migration.

Keywords: Sunspots; Immigration; International Migration (search for similar items in EconPapers)
JEL-codes: F22 F42 (search for similar items in EconPapers)
Pages: 41 pgs.
Date: 2003-09-26
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Persistent link: https://EconPapers.repec.org/RePEc:umc:wpaper:0312

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