Asymmetric information and the brain drain

Abstract

Within an asymmetric information framework, we investigate the effects of subsidies for return when the size of the foreign student population is endogenous. Given the stability condition and the assumption that the education system is effective in the home country, we show that susidies for return always act to improve the average ability of returning Ph. D. s but the impact upon the number of emigrants is ambiguous. As a consequence, subsidies for return may be ineffective for a general, reasonable government objective function. Also, we show that the number of emigrants with asymmetric information structure may be smaller than the case of symmetric information due to uncertainties present in our model.