Rethinking the Brain Drain

Abstract

When productivity is fostered by both the individual’s human capital and by the average level of human capital in the economy, individuals underinvest in human capital. A strictly positive probability of migration to a richer country, by raising both the level of human capital formed by optimizing individuals in the home country and the average level of human capital of nonmigrants in the country, can enhance welfare and nudge the economy toward the social optimum. Under a well-controlled restrictive migration policy, the welfare of all workers is higher than in the absence of this policy.