Offshoring, Migrants and Native Workers: The Optimal Choice Under Asymmetric Information

Università degli Studi di Milano Department of Economics, Business and Statistics Working Paper

Posted: 17 Apr 2011

See all articles by Gianluca Orefice

Gianluca Orefice

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Date Written: June 14, 2010

Abstract

This paper presents a theoretical model about the optimal choice for a firm between offshoring and hiring immigrant workers under asymmetric information about their ability and effort in production (symmetric information is assumed about home born workers). When a domestic firm hires an immigrant it doesn't know his ability; while when the firm goes abroad it uses local agent in order to buy additional information about workers, thus enforceable contracts may be set. We show that it is optimal for firms to produce low quality products offshoring the production abroad, while intermediate quality level products will be produced at home using foreign born workers. Finally, high quality products will be produced using native workers.

Keywords: Offshoring, Migration, Asymmetric Information

JEL Classification: F22, F12

Suggested Citation

Orefice, Gianluca, Offshoring, Migrants and Native Workers: The Optimal Choice Under Asymmetric Information (June 14, 2010). Università degli Studi di Milano Department of Economics, Business and Statistics Working Paper , Available at SSRN: https://ssrn.com/abstract=1811645

Gianluca Orefice (Contact Author)

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII) ( email )

9 rue Georges Pitard
Paris Cedex 15, F-75015
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