How emigrants try to run their fiscal policies

by on May 16, 2012 at 4:49 am in Economics, Games | Permalink

In survey data collected as part of the study, Washington, D.C.–based migrants from El Salvador report that they would like recipient households to save 21.2 percent of remittance receipts, while recipient households prefer to save only 2.6 percent of receipts.

This is one reason why emigrant workers do not send more back home all at once, namely that the sender does some ex ante forced saving on behalf of the recipient, who otherwise is not trusted to do it.  Remitters also send relatively small sums — typical is $300 — but they send many times a year (16.9 times on average, in one study, despite some fixed costs of sending).  That is to stop the recipient from spending all of the aid at once.

Perhaps you have noticed that cross-national and multilateral aid is also often doled out in multiple parts, rather than all at once.

Is this socially optimal?  Maybe not.  Is this nearly universal?  Possibly so.

The quotation is from Dean Yang, here is more (pdf, see p.12).

RPLong May 16, 2012 at 7:08 am

What in the world is “social optimality?”

Matt May 16, 2012 at 7:11 am

Remitters also send relatively small sums ….but they send many times a year… That is to stop the recipient from spending all of the aid at once.

How sure are you that this isn’t because the person sending can’t afford to send a larger sum at any given time? I’d guess that that’s pretty likely and important.

sc May 16, 2012 at 7:46 am

pretty sure unless one doubts their ability to dip in to large savings, it is not clear why they would behave this way if they can save in several chunks why not one big one? In other words, surely they could afford it if they made the payments less frequently; they are not arguing that they remit little, rather that the split it into small packets.

davemorris May 16, 2012 at 8:14 am

They send it as soon as they get it because the recipients need it as soon as possible. They’re poor. You people should get out more.

Ricardo May 17, 2012 at 1:28 am

No, if a family is receiving a series of $300 payments 17 times a year, that means household income from remittances alone is $5,100. That’s already enough to be considered middle class in many developing countries. Additionally, most such households will have other members who work locally or run businesses to supplement the remittance income.

k May 16, 2012 at 8:37 am

If I make $2000 a month, and spend, say, $1000; from the remaining $1000, I wish to save $500 for myself and send $500 back home.

I mean, there is a constraint on how much one can give out. This constraint comes from how much one earns.

It is also easier to keep track of payments when you have make them regularly.

Peter May 16, 2012 at 9:33 am

Or the Salvadoran working in Washington sends some money out of each paycheck. The result: numerous small remittances over the course of a year.

corola May 16, 2012 at 8:55 am

Having supported lower income relatives abroad for several years now, I can say that those members of my extended family who need assistance tend to be very bad with spending control and saving. I tried sending larger lump sums before. It was a disaster. They spent it out quickly and even in some cases were worse off in absolute terms. Doling it out seems to be the only way to exert control from a distance. I will note that some of them would almost qualify as poor even by the standards of their poor country yet all were raised in middle class homes with good educations. The common characteristics are lack of planning, poor impulse control, inability to keep jobs requiring diligence, and a tendency to abuse opportunities for independent behavior.

Vic Kelley May 16, 2012 at 9:05 am

Some of this behavior may be to protect recipients from not just themselves but from robbery. Maybe it makes them less of a target for thieves. I don’t know. At least if they get robbed – or cheated by someone at a money receiving place or shaken down by someone there or whatever – they won’t lose everything their American supporter will ever be able to send them.

Jonathan Mendelsohn May 16, 2012 at 9:31 am

Forgive me if I missed something, but aren’t we talking about immigration?

Zachary May 16, 2012 at 12:17 pm

We are talking about the remittances of of the migrants. We’re talking about the cash moving – not the people.

Jonathan Mendelsohn May 16, 2012 at 1:53 pm

Correct. So I guess the correct word would simply be migrants. Emigrants seems to be a misleading word (I know I am ignoring the point of the post).

Becky Hargrove May 16, 2012 at 9:35 am

In defense of recipients with little income, I will say this: Itchy fingers to spend existing pools of money also apply for most pools of money institutional recipients didn’t actually create themselves. While most in reach of the pool are honest, someone invariably gets greedy. Now there’s an interesting correlation…this is why I prefer some forms of wealth to be stored in human skill time – not as easy to plunder where there is social agreement not to do so.

Will May 16, 2012 at 11:34 am

There are also differences in perception. The recipient doesn’t save as much because they assume that once you get to America, you’re rich and can send infinite amounts. The person earning it wants the recipient to save more of it because the earner realizes how precarious the situation is.

Eşarp May 17, 2012 at 3:39 am

çok başarılı bir paylaşım olmuş teşekkür ederim.

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