INTERNATIONAL MIGRATION AND UNCERTAINTY:A NON-FACTOR PRICE EQUALIZATION OVERLAPPING GENERATIONS MODEL

This paper proposes a framework to analyze international migrations under uncertainty in theDiamond (1965) two period overlapping generations model with two countries. Considering arandom country-shock on both labor and capital, we show that each autarkic Cobb-Douglaseconomy converges to a unique expected steady-state equilibrium which is a function ofcountry-specific shocks and parameters. Opening the borders of the two countries insteady-state equilibrium allows for individual migrations. Since risk is country-specific,incentives for migration exist and there is no factor price equalization. Since individuals areheterogeneous with respect to their risk aversion, some migrate and some do not. Countries arealways populated. Both temporary and return migrations appear.