Entry and Exit Strategies in Migration Dynamics

This work is devoted to study the role of combined entry and exit strategies in the migration process. We develop a real option model in which the community of immigrants in the host country is described as a club and the immigrants benefits is a U-shaped function, depending on the dimension of the district. There exist two threshold levels: the first one triggers the migration choice, while the second triggers the return to the country of origin. The theoretical results show that the phenomenon of hysteresis is amplified by the existence of a community both in the entry case and in the exit case. Furthermore, the community can reduce the minimum wage level required to trigger both exit and entry: this fact could explain why in some cases we observe migration inflows with a low wage differential and also with underunemployment. We show also some possible further extensions of the model: in one case we introduce a possible way to select the entrants’ skills and in another case we show some theoretical implementations to include possible policy shocks in the migrant’s choice.Migration, Real Option, Theory of Clubs, Network Effect

The Role of Community in Migration Dynamics

In this paper, we present a theoretical model that, implementing the pioneering work of Burda (1995), based on the Real Option Theory, investigates the roots of the migration dynamics. In the model the decision to migrate of each individual depends not only on the wage differential, but also on a U-shaped benefit function of a community of homogeneous ethnic individuals, modelled according to the "theory of clubs". The theoretical results are able to give an explanation to the observable "jumps" in the migration flows and to describe how the trigger for entry can change depending on the dimension of the district. The analysis of the results also sheds light on the dynamics of the districts’ development: some possible rigidities in the adjustment of the district dimension, as regards the optimal levels, could magnify the hysteresis process.Migration, Real option, Theory of clubs, Network effect

Managing Migration through Quotas: an Option-theory Perspective

Recent European Legislation on immigration has revealed a particular paradox on migration policies. On the one hand, the trend of recent legislation points to the increasing closure of frontiers (OECD 1999, 2001,2004), also by using immigration quotas. On the other hand, there is an increase of regularization, i.e., European policies are becoming less tight. Our aim here is to study these counterbalanced and opposite policies in European immigration legislation in a unified framework . To do this, we have used a real option approach to migration choice that assumes that the decision to migrate can be described as an irreversible investment decision where quotas represent an upper bound limit. Our results show that the paradox of counterbalancing immigration policies is not odd but it could be in line with an optimal policy to control migration inflow. In particular, we show that if the government controls the information related to the immigration quota system it could delay the mass entry of immigrants maintaining, in the long run, the required immigration stock and controlling the flows in the short-run.Immigration, Real Option, Quota System

Migration Dynamics

This paper look at why most migration flows include observable jumps, a phenomenon that is in line with migration irreversibility. We have presented a real option model where the migration choice depends on both the wage differential between the host country and the country of origin, and on the probability of full integration into the host country. The optimal migration decision of an individual consists of waiting to migrate in a (coordinated) mass of individuals. The size of the migration flow depends on the behavioural characteristics of the ethnic groups: the more "sociable" they are, the larger the wave and the lower the wage differential required. The second part of the paper is devoted to calibrating the model and simulating migration flows into Italy over the last decade. The calibration can replicate the migration jumps in the short term. In particular, the calibrated model is able to project the induced labour demand elasticity level of the host country and the behavioural rationale of the migrants.Migration, Real Option, Labour Market, Network Effect

Managing Migration through Conflicting Policies: an Option-theory Perspective

Recent European legislation on immigration has revealed a particular paradox on migration policies. On the one hand, the trend of recent legislation points to the increasing closure of frontiers (OECD 1999, 2001,2004), trying to limit the immigrants’ stock. On the other hand, there is an increase in regularization, i.e., European policies are becoming less tight. Our aim here is to develop a theoretical model that tries to explain if it is better for the government to tighten or relax limits for immigrants in order to control migration inflows better. To this end, we use a real option approach to migration choice that assumes that the decision to migrate can be described as an irreversible investment decision. In our model the government has in mind a specific upper bound on immigrants, and the policies adopted (admission requirements or regularizations) are signals for each potential migrant that reveal information about this limit. Our results show that promoting uncertainty over this migration upper bound may improve the government’s control on migration inflows (quotas). This could explain that the paradox of counterbalancing policies is not an odd evidence. In particular, we show that if the government controls the information related to the immigration stock it could delay the mass entry of immigrants, maintaining the required stock in the long run and controlling the flows in the short-run.immigration, real option

Does Corporate Social Responsibility Affect the Performance of Firms?

Over the last two decades in OECD countries increasingly more firms are certifying as Socially Responsible (CSR is the acronym for Corporate Social Responsibility). This kind of certification is assigned by private companies that guarantee that a certain firm’s behaviour is environmentally and sociologically correct. Some papers (including Preston and O’Bannon, 1997; Waddock and Graves, 1997; McWilliams and Sieger, 2001; Ullman, 1985) tried to establish if there exists a link between Social Responsibility certification and the performance of firms. Their results were ambiguous and did not show any common connection. This ambiguity depends mainly on the static nature of their analyses and on the problem of whether performance is affected more by certification costs or by increasing sales due to an effect on reputation. Our work would like to discover whether certain performance indicators are affected by a firm’s social responsible behaviour and their certifications by looking at panel data. The novelty of our analysis is due to its dynamic aspect and from a CSR index that intersects two of the three main international indices (Domini 400 Social Index, Dow Jones Sustainability World Index, FTSE4Good Index), to be objective and obtain a representative sample. The main results seem to support the idea that CSR firms which are more virtuous, have better long run performance. They have some initial costs but obtain higher sales and profits due to several causes reputation effect, a reduction of long run costs and increased social responsible demand.Corporate Social Responsibility, Growth

Migration Dynamics

This paper tries to explain why most migration flows show some observable jumps in their processes, a phenomenon that seems to be sympathetic with the characteristic of irreversibility of migration. We present a real option model where the choice to migrate depends on both the differential wage between the host country and the country of origin, and on the probability of being fully integrated into the host country. The theoretical results show that the optimal migration decision of a single individual consists of waiting before migrating in a (coordinate) mass of individuals. The dimension of the migration flow depends on the behavioural characteristics of the ethnic groups: the more "sociable" they are, the larger the size of the wave and the lower the differential wage required. A second part of the paper is devoted to calibrating the model and simulating some migration flows to Italy in the last decade. The calibration is able to replicate the observable migration jumps in the short term. In particular, the calibrated model is able to conjecture the induced labour demand elasticity level of the host country and the behavioural rationale of the migrants.Migration, Real Option, Labour Market, Network Effect

Optimal Investment and Financial Strategies under Tax Rate Uncertainty

In this paper we apply a real-option model to study the effects of tax rate uncertainty on a firm's decisions. In doing so, we depart from the relevant literature, which focuses on fully equity-financed investment project. By letting a representative firm borrow optimally, we show that debt finance not only encourages investment activities but can also substantially mitigate the effect of tax rate uncertainty on investment timing.capital levy, corporate taxation, default risk, real options

Land Conversion Pace under Uncertainty and Irreversibility: too fast or too slow?

In this paper stochastic dynamic programming is used to investigate land conversion decisions taken by a multitude of landholders under uncertainty about the value of environmental services and irreversible development. We study land conversion under competition on the market for agricultural products when voluntary and mandatory measures are combined by the Government to induce adequate participation in a conservation plan. We study the impact of uncertainty on the optimal conversion policy and discuss conversion dynamics under different policy scenarios on the basis of the relative long-run expected rate of deforestation. Interestingly, we show that uncertainty, even if it induces conversion postponement in the short-run, increases the average rate of deforestation and reduces expected time for total conversion in the long run. Finally, we illustrate our findings through some numerical simulations.Optimal Stopping, Deforestation, Payments for Environmental Services, Natural Resources Management

An Equilibrium Model of Habitat Conservation under Uncertainty and Irreversibility

In this paper stochastic dynamic programming is used to investigate habitat conservation by a multitude of landholders under uncertainty about the value of environmental services and irreversible development. We study land conversion under competition on the market for agricultural products when voluntary and mandatory measures are combined by the Government to induce adequate participation in a conservation plan. We analytically determine the impact of uncertainty and optimal policy conversion dynamics and discuss different policy scenarios on the basis of the relative long-run expected rate of deforestation. Finally, some numerical simulations are provided to illustrate our findings.Optimal Stopping, Deforestation, Payments For Environmental Services, Natural Resources Management