Reference-dependent preference and interregional migration: extending the Harris–Todaro model

Abstract

This study theoretically illustrates migration between regions and relative poverty, assuming a consumer (resident) has a reference-dependent preference. The model is primarily based on Harris and Todaro (Am Econ Rev 60:126–142, 1970), and the effect of the reference-dependency is argued. The dependency essentially works as a centrifugal force, mitigating the “overpopulation” of the industrialized region, if it is correctly recognized. However, when people have localized reference (incomplete information), or the preference is of the type often assumed in prospect theory, the force is weakened.