Models of Remittances and Migration with or Without Cooperation

Abstract

This paper examines the effect of urban income uncertainty on urban-to-rural and rural-to-urban remittances, as well as on the decision to migrate. It also explores whether remittances can be sustained in a non-cooperative setting, and whether cooperative behavior might emerge from individuals acting purely in self-interest. In the cooperative case it is shown that an increase in the spread between high and low urban income, or a decrease in the probability of high urban income, alters the remittance agreement so as to increase the amount of urban-to-rural remittances. In the non-cooperative case, the set of remittances supported by a subgame perfect equilibrium is derived. In addition, it is shown that under certain parametric restrictions, the cooperative equilibrium may arise as a solution to the non-cooperative game.

JEL Classification: C71, C72, O15, O18