MIGRATION COST EXTERNALITY AND INTERREGIONAL EQUILIBRIUM

This paper introduces the concept of migration cost in analyzing the i nterregional allocation of population. Migration cost gives the social planner an additional burden of population reallocation, and it has a n important effect upon an individual's decisions on migration in a de centralized market mechanism. Interregional migration is influenced by migration cost, initial state of the population, etc. Though the diff erence of marginal productivity of labor and the consumption of compos ite good in one region is greater than that in another region, migrati on will not be desirable if the difference of net benefit between two regions from migration does not cover migration cost. Therefore, there will be a range of initial population allocation for which no migrati on occurs, not only for the social planner's problem but also for the individual's migration decision. Comparison of populations between soc ial optimum and market equilibrium with central government interventio n reveals migration cost externality. The reason and remedy for this e xternality are discussed.