DP1811 Herd Effects and Migration
In this paper we introduce the notion of herd effects or information cascades into models of migration-related phenomena. We consider individuals making sequential decisions regarding emigration. Each individual receives a signal which conveys private information regarding preferred locations abroad, and also observes the decisions made by previous emigrants. The herd behaviour which ensues gives rise to geographical concentration in host countries of immigrants from the one location. We show how herd effects can be expected to have both efficiency and political-economy consequences. We expect international factor allocation predicated on herd effects to be inefficient. Herd effects can also be the source of social tensions when the host country?s resident population is xenophobic. In general, herd effects can lead to incorrect personal location decisions, since people are led to discount their private information. We also compare herd effects with the network-externalities explanation of immigrant concentration.
