The Economics of Immigration 2nd Edition by Cynthia Bansak

Exercise 4

Suppose a person has a utility function that increases linearly with net income. The person can earn the equivalent of $8,000 if employed in the origin country and $12,000 if employed in the destination country. At what level of migration costs is this person indifferent to moving if the probability of employment is 100 percent in both countries? If migration costs $1,000, and the person has a 90 percent chance of being employed in the origin, how high does the probability of employment in the destination need to be for this person to be willing to move?