Strategic and Altruistic Remittances

Abstract

Economists’ conjectures on the motives for private income transfers (more or less pure kinds of altruism, mutual insurance or other exchanges of services, and so on (Cox, 1987; Andreoni, 1989; Coate and Ravaillon, 1993)) and for migration (Sjaastad, 1962; Mincer, 1978) have recently been mixed in a fascinating debate regarding the motivations to remit (Stark, 1980; Rempel and Lobdell, 1980; Lucas and Stark, 1985; Hoddinott, 1994). Indeed, remittances might be both the cause and the consequence of migration, and it is necessary to treat those two interdependent decisions in an encompassing framework. Among many plausible comprehensive explanations, the possibility of strategic self-selection among migrants through remittances has been raised by Stark (1995, ch. 4). Stark’s rationale is approximately as follows: when migrants are heterogeneous in skills and individual productivity is not perfectly observable on the labour market of the host country (for at least a certain period of time), migrant workers are paid the average productivity of the minority group to which they belong. In such a context, there is room for cooperative arrangements between skilled and unskilled migrants: the former can act cohesively and ‘bribe’ the latter in order to keep them at home. The interaction results in a selection bias (only skilled workers migrate), and Pareto-efficiency is enhanced.

We would like to thank Stephane Lambrechts and participants at the IEA Conference, for useful comments.