THE LUXURY AXIOM, THE WEALTH PARADOX, AND CHILD LABOR

Basu and Van (1998) present a fundamental framework of child labor with two important axioms: the luxury axiom and the substitution axiom. A number of empirical studies, however, reveal a ¡°wealth paradox¡±. The current paper has two aims. First, it develops a model that provides an explanation for ¡°the wealth paradox¡± in light of the luxury axiom and the substitution axiom. Second, it helps understand the relationship between the luxury axiom and the substitution axiom.Child Labor, Luxury Axiom, Wealth Paradox, Substitution Axiom

The brain drain, educated unemployment, human capital formation, and economic betterment

Extending both the “harmful brain drain” literature and the “beneficial brain gain” literature, this paper analyzes both the negative and the positive impact of migration by skilled individuals in a unified framework. The paper extends the received literature on the “harmful brain drain” by showing that in the short run, international migration can result in “educated unemployment” and in overeducation in developing countries, as well as in a brain drain from these countries. A simulation suggests that the costs of the negative consequences of “educated unemployment” and overeducation can amount to significant losses for the individuals concerned, who may constitute a substantial proportion of the educated individuals. Adopting a dynamic framework, it is then shown that due to the positive externality of the prevailing, economy-wide endowment of human capital on the formation of human capital, a relaxation in migration policy in both the current period and the preceding period can facilitate “take-off” of a developing country in the current period. Thus, it is suggested that while a controlled migration of skilled individuals may reduce the social welfare of those who stay behind in the short run, it improves it in the long run

A Signaling Model of Quality and Export: with application to dumping

Extending the literature on quality and trade and supported by the empirical evidence obtained from China, this paper demonstrates that in a developing country, a firm’s export to developed countries has a potential signaling effect on domestic consumers’ perception of its product quality. The model analyzes the signaling and imitating strategies of different types of firms in their decisions to export, and characterizes the conditions for the separating, pooling, and hybrid equilibria. Next, the analysis shows that the strategic exporting of low-quality producers under informational asymmetry can result in dumping. Moreover, the model shows that the implementation of antidumping measures of foreign countries can lead to a Pareto improvement for the firms and consumers of the home country under some circumstances.

The Brain Drain, “Educated Unemployment,” Human Capital Formation, and Economic Betterment

Extending both the “harmful brain drain” literature and the “beneficial brain gain” literature, this paper analyzes both the negative and the positive impact of migration by skilled individuals in a unified framework. The paper extends the received literature on the “harmful brain drain” by showing that in the short run, international migration can result in “educated unemployment” and overeducation in developing countries, as well as a brain drain from these countries. A simulation suggests that the costs of “educated unemployment” and overeducation can amount to significant losses for the individuals concerned, who may constitute a substantial proportion of the educated individuals. Adopting a dynamic framework, it is then shown that due to the positive externality of the prevailing, economy-wide endowment of human capital on the formation of human capital, a relaxation in migration policy in both the current period and the preceding period can facilitate “take-off” of a developing country in the current period. Thus, it is suggested that while the migration of some educated individuals may reduce the social welfare of those who stay behind in the short run, it improves it in the long run.

A Theory of Migration as a Response to Occupational Stigma

A theory is developed of labor migration that is prompted by a desire to avoid "social humiliation." In a general equilibrium framework it is shown that as long as migration can reduce humiliation sufficiently, migration will occur even between two identical economies. Migration increases the number of individuals who choose to perform degrading jobs and consequently, migration lowers the price of the good produced in the sector that is associated with low social status. Moreover, the greater an individual’s aversion to performing degrading jobs, the more likely it is that he will experience a welfare gain when the economy opens up.Migration, social distance, occupational status, social exposure gains, general equilibrium,

Migration for degrading work as an escape from humiliation

This paper develops a model of voluntary migration into degrading work. The essence of the model is a tension between two “bads:” that which arises from being relatively deprived at home, and that which arises from engaging in humiliating work away from home. Balancing between these two “bads” can give rise to an explicit, voluntary choice to engage in humiliating work. The paper identifies conditions under which a migrant will choose to engage in degrading work rather than being forced into it, to work abroad as a prostitute, say, rather than on a farm. The paper delineates the possible equilibria and finds that greater relative deprivation will make it more likely that the equilibrium outcome will be “engagement in prostitution.” It is shown that under well specified conditions, every individual will work as a prostitute, yet every individual would be better off working on a farm. Put differently, when specific conditions are satisfied, there is a possibility of a “coordination failure:” if individuals believe that everyone else will choose to be a prostitute, this belief will be self-fulfilling. In this case, all the individuals choose to engage in prostitution, which renders each of them worse off. The paper discusses various policy implications. It is shown that a policy intervention (a crackdown on migrants’ engagement in prostitution), if implemented strictly, can increase everyone’s welfare, but when the policy is implemented loosely, cracking down on prostitution will only reduce individuals’ welfare without reducing their engagement in prostitution.Migrants; Relative deprivation; Degrading work; Humiliation; Multiple equilibria; Welfare assessment; Policy implications

Religious participation and children\u27s education : a social capital approach

Based on the argument in both economic and sociological literature that religion is conducive to their children\u27s human capital formation, this paper provides a model of religious participation and explores a mechanism that “social capital affects children\u27s education, a la Coleman (1988). The model generates several interesting implications, which help explain some important stylized facts about education and religion. Further, in a dynamic setting, the model shows that there exists a steady state, in which individuals allocate a positive amount of time and resources to religious activities. Thus, it complements the existing literature \u27to explain why seemingly unproductive religions can be everlasting

Do the rich save more? : a new view based on intergenerational transfers

Do richer people have higher saving rates? The short-run and long-run consumption functions have different answers to this important question, which results in an important “consumption puzzle that was a focus of macroeconomic research in the 1950s and 1960s. 1n a recent empirical contribution, Dynan, Skinner and Zeldes (2004) revive this old question and make this “consumption puzzle more intriguing, by showing that the average propensity to consume decreases not only with current income but also with lifetime income. This paper provides a model that helps resolve this puzzle from an intergenerational perspective