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Working Paper Abstract

Regional Redistribution and Migration
by Paolo Manasse (IGIER and UniversitÓ Statale, Milano) and Christian Schultz (University of Copenhagen)

We study a model with free migration between a rich and a poor region. Since there is congestion, the rich region has an incentive to give the poor region a transfer in order to reduce immigration. Faced with free migration, the rich region voluntarily chooses a transfer, which turns out to be equal to that a social planner would choose. Provided migration occurs in equilibrium, this conclusion holds even in the presence of moderate mobility costs. However, large migration costs will lead to suboptimal transfers in the market solution.

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Last updated March 6, 2003