Offshoring, Migrants and Native Workers : The Optimal Choice Under Asymmetric Information

This paper presents a theoretical model about the optimal choice for a firm between offshoring and hiring immigrant workers under asymmetric information about their ability and effort in production (symmetric information is assumed about home born workers). When a domestic firm hires an immigrant it doesn't know his ability; while when the firm goes abroad it uses local agent in order to buy additional information about workers, thus enforceable contracts may be set. We show that it is optimal for firms to produce low quality products offshoring the production abroad, while intermediate quality level products will be produced at home using foreign born workers. Finally, high quality products will be produced using native workers