Nova School of Business and Economics – Universidade Nova de Lisboa e NOVAFRICA
Development Research Group, the World Bank e NOVAFRICA
Working Paper No 2111
We test the predictions of different classic migration theories by using incentivized laboratory experiments to investigate how potential migrants decide between working in different destinations. We test theories of income maximization, migrant skill-selection, and multi-destination choice as we vary migration costs, liquidity constraints, risk, social benefits, and incomplete information. We show the standard income maximization model of migration with selection on observed and unobserved skills leads to a much higher migration rate and more negative skill-selection than is obtained when migration decisions take place under more realistic assumptions. Second, we investigate whether the independence of irrelevant alternatives (IIA) assumption holds. We find it holds for most people when decisions just involve wages, costs, and liquidity constraints. However, once we add a risk of unemployment and incomplete information, IIA no longer holds for about 20 percent of our sample.
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