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The Welfare Economics of Rural‐To‐Urban Migration: The Harris‐Todaro Model Revisited
Author(s) -
Krichel Thomas,
Levine Paul
Publication year - 1999
Publication title -
journal of regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.171
H-Index - 79
eISSN - 1467-9787
pISSN - 0022-4146
DOI - 10.1111/0022-4146.00142
Subject(s) - subsidy , economics , flexibility (engineering) , wage , welfare , labour economics , economies of agglomeration , outcome (game theory) , constraint (computer aided design) , microeconomics , market economy , mechanical engineering , management , engineering
In this paper we extend the Harris‐Todaro model of rural‐to‐urban migration to include urban agglomeration effects, some urban real wage flexibility, and a government budget constraint. Without employment subsidies laissez‐faire migration is excessive unless real wage flexibility and agglomeration effects are high. Laissez‐faire migration is too low compared with the first‐best outcome supported by a subsidy, if its financing involves no costs. Simulations suggest that such a program would imply a substantial increase in taxation. If, as seems likely, an increase of this magnitude involves economic costs then the optimal outcome falls well short of first‐best.