International Remittances and Residents' Labour Supply in a Signaling Model

This paper analyzes the impact of remittances sent by altruistic migrants on the labor supply of residents. The model is cast as a two-period game with asymmetric information about the residents' real economic situation. The optimal transfer depends on wages of both the donor and the recipient. Residents subject to a good economic situation may behave as if they were in a poor economic situation only in order to manipulate remitters' expectations. The latter, being aware of this risk, reduce the transferred amount accordingly. Therefore, in the equilibrium, residents who really are victims of the bad economic outlook, are penalized as compared to the perfect information set-up. In some circumstances, they can signal their type by drastically cutting working hours, thus further enhancing their precarity