Differential migration prospects, skill formation, and welfare

This paper develops a one sector, two-input model with endogenous human capital formation. The two inputs are two types of skilled labor: engineering, which exerts a positive externality on total factor productivity, and law, which does not. The paper shows that a marginal prospect of migration by engineers increases human capital accumulation of both types of workers (engineers and lawyers), and also the number of engineers who remain in the country. These two effects are socially desirable, since they move the economy from the(inefficient) free-market equilibrium towards the social optimum. The paper also shows that if the externality effect of engineering is sufficiently powerful, everyone will be better off as a consequence of the said prospect of migration, including the engineers who lose the migration lottery, and even the individuals who practice law. --heterogeneous human capital,differential externality effects,migration of educated workers,human capital formation,efficient acquisition of human capital,beneficial brain drain

Trade Costs, Conflicts, and Defense Spending

This paper develops a quantitative model of trade, military conflicts, and defense spending. Trade liberalization between two countries reduces probability of an armed conflict between them, causing both to cut defense spending. This in turn causes a domino effect on defense spending by other countries. As a result, both countries and the rest of the world are better off. We estimate the model using data on trade, conflicts, and military spending. We find that, after reduction of costs of trade between a pair of hostile countries, the welfare effect of worldwide defense spending cuts is comparable in magnitude to the direct welfare gains from trade

The Role of Passionate Individuals in Economic Development

In this paper, I merge two theories -- theory of "passionate individuals" by Gumilev(1989) and Memetics by Dawkins(1976) - to develop a formal growth theory that states that societies become more developed when their members have more intrinsic motivation to solve problems of social importance (i.e. make "cultural contributions"). Individuals derive utility from genetic fitness (i.e. the number of surviving children) as well as from cultural fitness, defined as the amount of appreciation ("honor") of one's cultural contribution by future generations. To make a cultural contribution, one must study/honor cultural contributions of the past, which leads to multiple steady states. In the survival steady state, individuals expect that no one in the future will be interested in their cultural contribution, which makes them allocate all energy onto maximization of genetic fitness and care little about cultural contributions of the past. In the passionate steady state, individuals expect high appreciation of their cultural contribution and thus spend a lot of energy onto making such a contribution, which makes them highly appreciate cultural contributions of the past. Empirical implications of theory are also discussed.passionate individuals, human values, poverty traps, memetics, economic growth

Nothing else matters: evolution of preference for social prestige

This paper seeks answers to two questions. First, if a greater social activity of an individual enhances oblique (i.e. to non-relatives) transmission of her cultural traits, but reduces their vertical (i.e. to children) transmission as well as family size, which behavior is optimal from cultural evolution standpoint? I formalize a general model that characterizes evolutionarily stable behaviors. The proposed model replicates the theory of Newson et al. (2007) that fertility decline is caused by increasing role of oblique cultural transmission. Second, if social activity is a rational choice rather than culturally inherited trait, and if cultural transmission acts on preferences rather than decisions, which preferences survive the process of cultural evolution? I arrive at a very simple yet powerful result: under mild assumptions on model structure, only preferences which emphasize exclusively the concern for social prestige, i.e. extent to which one’s cultural trait has been picked up by others, survive

Return Migration: an Empirical Investigation

Many people emigrating abroad eventually return home. Yet, little is known about the returnees: who are they and how do they compare to those who did not return? How does their decision to return depend on economic situation at home? In this paper, I empirically analyze the propensity of US immigrants to return. To identify return migration, I use the method adopted from Van Hook et.al. (2006). The method is based the U.S. Current Population Survey (CPS) which interviews households for two consecutive years. About a quarter of foreign-born individuals drop out of the sample between the first and the second years, due to various causes including return migration. After eliminating all other causes of dropout, I estimate the propensity of immigrants to return, depending on personal and home country characteristics. I find that the difference between recent immigrants and other immigrants is greater than the difference between men and women, or skilled and unskilled migrants. Thus, assimilation differentiates immigrants more in their decision to return than education or gender. In particular, distance to home country negatively affects return propensity of those who arrived over 10 years ago, and has no effect on recent immigrants

Dead men tell no tales: how the Homo sapiens became Homo economicus

The paper explains long-term changes in birth, death rates and attitude to personal consumption by changing patterns of cultural transmission. When communities are culturally isolated, they are focused on population growth, resulting in large fertility and welfare transfers to children, limited adult consumption and lack of old-age support. With increasing cultural contact across communities, successful cultural traits induce their hosts to attempt becoming celebrities by limiting fertility and increasing longevity via higher consumption and old-age arrangements. Empirical analysis confirms that celebrities have fewer children and live longer; their presence precedes reduced aggregate birth and death rates

Endogenous Growth and Demographic Transition in a model of Cultural Transmission

Demographic transition theory is developed highlighting cultural transmission pattern as key driver. Individuals maximize cultural fitness, i.e. rate of own cultural type absorbtion by future generations. With low population density, one's culture can be picked up only by own children, thus cultural fitness equals genetic fitness, individuals allocate all energy surplus to reproduction, and Malthusian regime occurs. With rising population density, cultural transmission between non-relatives accelerates; knowledge production by an individual makes her culture more attractive. Individuals reallocate some of energy surplus from reproduction to knowledge production, causing technological growth. The model fits observed demographic transition patterns

Children Versus Ideas: an “Influential” Theory of Demographic Transition

In this paper, I propose a theory of demographic transition and associated growth of the stock of knowledge that posits social influence as a key determinant of these phenomena. Individuals are influenced by ideas developed in the previous generation; their goal is to maximize their own social influence, that is, the extent to which their ideas have been used by the next generation. With high communication costs, one's ideas are utilized mainly by his/her children, which creates an incentive to have as many children as possible. With modern communication technologies, one's ideas can be used by millions, which makes people invest time into improvement of own ideas rather than production of children. Even those who can influence only their own children are induced to have smaller families and improve own ideas, because their children now have access not only to ideas of parents but also to ideas from the outside world

Human capital acquisition and international migration in a model of educational market

This paper analyzes international high-skilled migration caused by financial frictions in educational market. I develop a model of learning in which acquisition of skill is only possible through personal interaction with a skilled individual; the income of the skilled is sensitive to financial constraints for the unskilled. Cross-country differences in such constraints have a multiplicative effect on the skill premium, causing outmigration of skilled individuals from a less developed country. I study welfare implications of such brain drain for the sending and receiving countries. Although it makes more difficult skill acquisition in the sending country, the unskilled may still be better off: increased cost of skill acquisition is offset by higher income once the skill has been acquired. For the receiving country, I identify a phenomenon of immiserizing immigration: a depletion of the stock of skill in the sending country due to brain drain hinders further production of skill, which may hurt the receiving country. Additionally, I find that increased openness of the sending country to migration and the resultant accelerated brain drain increase the incentives of the country government to reduce financial frictions

Children Versus Ideas: an “Influential” Theory of Demographic Transition

In this paper, I build on Blackmore (2000) to propose a formal theory of demographic transition (fertility decline) and associated growth of the stock of knowledge. The novelty of this theory is to entirely exclude private consumption from the objective function of the decision makers, and to assume that their goal is to maximize their social influence, that is, the number of people in the next generation utilizing their ideas. With high communication costs, one’s ideas are utilized mainly by his/her children, which creates an incentive to have as many children as possible. With modern communication technologies, one’s ideas can be used by millions, which makes people invest time into improvement of own ideas rather than production of children. Even those who can influence only their own children are induced to have smaller families and improve own ideas, because their children now have access not only to ideas of parents but also to ideas from the outside world