A political economy model of immigration quotas

The paper examines a model in which the number of immigrants allowed into a country is the outcome of a costly political lobbying contest between a firm and a union. The union and the firm bargain over the wage of natives after the number of immigrants that will be permitted is known. I assume that the lobbying contest is an all-pay auction (i.e., the lobbyist with the higher effort wins with certainty). Comparative statics results are derived to show how the reservation wage of immigrants, the price of the firms product, the size of the union and the cost of lobbying affect immigration quotas and the post-immigration wage of natives.Received: 4 June 2003, Accepted: 23 June 2004 JEL Classification: D72, D73, J5, J61I thank the editor, Amihai Glazer, Don Devoretz, Dan Usher, and three anonymous referees for helpful comments. My thanks are especially due to Doug Allen and Gordon Myers who supervised this work as part of my doctoral thesis at Simon Fraser University, Canada. An earlier version of this paper was circulated as RIIM working paper #00-01, Simon Fraser University, Canada and also presented at the 2001 meetings of the Canadian Public Economics Study Group in Montreal, Canada.